Some Sparton Resources Inc. (CVE:SRI) shareholders are probably rather concerned to see the share price fall 33% over the last three months. But in stark contrast, the returns over the last half decade have impressed. It's fair to say most would be happy with 200% the gain in that time. We think it's more important to dwell on the long term returns than the short term returns. Ultimately business performance will determine whether the stock price continues the positive long term trend.
Sparton Resources recorded just CA$82,546 in revenue over the last twelve months, which isn't really enough for us to consider it to have a proven product. So it seems that the investors focused more on what could be, than paying attention to the current revenues (or lack thereof). It seems likely some shareholders believe that Sparton Resources will discover or develop fossil fuel before too long.
We think companies that have neither significant revenues nor profits are pretty high risk. There is usually a significant chance that they will need more money for business development, putting them at the mercy of capital markets. So the share price itself impacts the value of the shares (as it determines the cost of capital). While some such companies do very well over the long term, others become hyped up by promoters before eventually falling back down to earth, and going bankrupt (or being recapitalized). Sparton Resources has already given some investors a taste of the sweet gains that high risk investing can generate, if your timing is right.
Sparton Resources had liabilities exceeding cash by CA$574,398 when it last reported in March 2019, according to our data. That makes it extremely high risk, in our view. So we're surprised to see the stock up 25% per year, over 5 years, but we're happy for holders. Investors must really like its potential. You can click on the image below to see (in greater detail) how Sparton Resources's cash levels have changed over time. You can click on the image below to see (in greater detail) how Sparton Resources's cash levels have changed over time.
In reality it's hard to have much certainty when valuing a business that has neither revenue or profit. One thing you can do is check if company insiders are buying shares. If they are buying a significant amount of shares, that's certainly a good thing. You can click here to see if there are insiders buying.
A Different Perspective
We regret to report that Sparton Resources shareholders are down 54% for the year. Unfortunately, that's worse than the broader market decline of 1.5%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. On the bright side, long term shareholders have made money, with a gain of 25% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. Before spending more time on Sparton Resources it might be wise to click here to see if insiders have been buying or selling shares.
We will like Sparton Resources better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA exchanges.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at email@example.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.