European Metals Holdings (ASX:EMH) Shareholders Have Enjoyed A Whopping 555% Share Price Gain
European Metals Holdings Limited (ASX:EMH) shareholders might be rather concerned because the share price has dropped 36% in the last month. But that does not change the realty that the stock's performance has been terrific, over five years. Indeed, the share price is up a whopping 555% in that time. Arguably, the recent fall is to be expected after such a strong rise. Of course what matters most is whether the business can improve itself sustainably, thus justifying a higher price. Unfortunately not all shareholders will have held it for five years, so spare a thought for those caught in the 52% decline over the last three years: that's a long time to wait for profits.
We love happy stories like this one. The company should be really proud of that performance!
See our latest analysis for European Metals Holdings
With just AU$424,643 worth of revenue in twelve months, we don't think the market considers European Metals Holdings to have proven its business plan. 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 European Metals Holdings 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 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 go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. Some European Metals Holdings investors have already had a taste of the sweet taste stocks like this can leave in the mouth, as they gain popularity and attract speculative capital.
European Metals Holdings had cash in excess of all liabilities of just AU$274k when it last reported (June 2019). So if it hasn't remedied the situation already, it will almost certainly have to raise more capital soon. Given how low on cash the it got, investors must really like its potential for the share price to be up 40% per year, over 5 years . You can see in the image below, how European Metals Holdings's cash levels have changed over time (click to see the values). The image below shows how European Metals Holdings's balance sheet has changed over time; if you want to see the precise values, simply click on the image.
Of course, the truth is that it is hard to value companies without much revenue or profit. However you can take a look at whether insiders have been buying up 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 European Metals Holdings had a tough year, with a total loss of 19%, against a market gain of about 25%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Longer term investors wouldn't be so upset, since they would have made 46%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU exchanges.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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.
