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For many, the main point of investing in the stock market is to achieve spectacular returns. While not every stock performs well, when investors win, they can win big. For example, the Anglo Australian Resources NL (ASX:AAR) share price is up a whopping 570% in the last half decade, a handsome return for long term holders. And this is just one example of the epic gains achieved by some long term investors. Better yet, the share price has risen 9.8% in the last week.
Anyone who held for that rewarding ride would probably be keen to talk about it.
See our latest analysis for Anglo Australian Resources
With zero revenue generated over twelve months, we don't think that Anglo Australian Resources has proved its business plan yet. 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 Anglo Australian Resources will find or develop a valuable new mine before too long.
Companies that lack both meaningful revenue and profits are usually considered 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 companies like this go on to deliver on their plan, making good money for shareholders, many end in painful losses and eventual de-listing. Of course, if you time it right, high risk investments like this can really pay off, as Anglo Australian Resources investors might know.
Our data indicates that Anglo Australian Resources had AU$145,848 more in total liabilities than it had cash, when it last reported in December 2018. That makes it extremely high risk, in our view. So we're surprised to see the stock up 46% 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 Anglo Australian 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. Luckily we are in a position to provide you with this free chart of insider buying (and selling).
A Different Perspective
Investors in Anglo Australian Resources had a tough year, with a total loss of 26%, against a market gain of about 11%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 46% 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. You could get a better understanding of Anglo Australian Resources's growth by checking out this more detailed historical graph of earnings, revenue and cash flow.
For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU 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 firstname.lastname@example.org. 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.