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The last three months have been tough on Lithium Chile Inc. (CVE:LITH) shareholders, who have seen the share price decline a rather worrying 45%. But that doesn't undermine the fantastic longer term performance (measured over five years). In fact, during that period, the share price climbed 2200%. Impressive! So it might be that some shareholders are taking profits after good performance. But the real question is whether the business fundamentals can improve over the long term. Unfortunately not all shareholders will have held it for the long term, so spare a thought for those caught in the 78% decline over the last twelve months.
Anyone who held for that rewarding ride would probably be keen to talk about it.
With just CA$90,506 worth of revenue in twelve months, we don't think the market considers Lithium Chile to have proven its business plan. So it seems shareholders are too busy dreaming about the progress to come than dwelling on the current (lack of) revenue. It seems likely some shareholders believe that Lithium Chile will find or develop a valuable new mine before too long.
We think companies that have neither significant revenues nor profits are pretty high risk. There is almost always a chance they will need to raise more capital, and their progress - and share price - will dictate how dilutive that is to current holders. 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). Lithium Chile has already given some investors a taste of the sweet gains that high risk investing can generate, if your timing is right.
Lithium Chile had cash in excess of all liabilities of just CA$2.8k when it last reported (December 2019). So if it has not already moved to replenish reserves, we think the near-term chances of a capital raising event are pretty high. It's a testament to the popularity of the business plan that the share price gained 15% per year, over 5 years , despite the weak balance sheet. You can click on the image below to see (in greater detail) how Lithium Chile'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. However you can take a look at whether insiders have been buying up shares. It's usually a positive if they have, as it may indicate they see value in the stock. You can click here to see if there are insiders buying.
A Different Perspective
While the broader market lost about 9.3% in the twelve months, Lithium Chile shareholders did even worse, losing 78%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. On the bright side, long term shareholders have made money, with a gain of 87% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. It's always interesting to track share price performance over the longer term. But to understand Lithium Chile better, we need to consider many other factors. To that end, you should learn about the 5 warning signs we've spotted with Lithium Chile (including 4 which is can't be ignored) .
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA exchanges.
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.
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. Thank you for reading.