It is doubtless a positive to see that the Pilot Energy Limited (ASX:PGY) share price has gained some 171% in the last three months. But will that repair the damage for the weary investors who have owned this stock as it declined over half a decade? Probably not. Indeed, the share price is down a whopping 81% in that time. While the recent increase might be a green shoot, we're certainly hesitant to rejoice. The real question is whether the business can leave its past behind and improve itself over the years ahead.
While a drop like that is definitely a body blow, money isn't as important as health and happiness.
Pilot Energy recorded just AU$756,785 in revenue over the last twelve months, which isn't really enough for us to consider it to have a proven product. You have to wonder why venture capitalists aren't funding it. As a result, we think it's unlikely shareholders are paying much attention to current revenue, but rather speculating on growth in the years to come. It seems likely some shareholders believe that Pilot Energy 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 companies like this go on to deliver on their plan, making good money for shareholders, many end in painful losses and eventual de-listing. Pilot Energy has already given some investors a taste of the bitter losses that high risk investing can cause.
Our data indicates that Pilot Energy had AU$357k more in total liabilities than it had cash, when it last reported in March 2019. That puts it in the highest risk category, according to our analysis. But with the share price diving 28% per year, over 5 years , it's probably fair to say that some shareholders no longer believe the company will succeed. The image below shows how Pilot Energy's balance sheet has changed over time; if you want to see the precise values, simply click on the image. You can click on the image below to see (in greater detail) how Pilot Energy's cash levels have changed over time.
It can be extremely risky to invest in a company that doesn't even have revenue. There's no way to know its value easily. Would it bother you if insiders were selling the stock? It would bother me, that's for sure. It only takes a moment for you to check whether we have identified any insider sales recently.
What about the Total Shareholder Return (TSR)?
Investors should note that there's a difference between Pilot Energy's total shareholder return (TSR) and its share price change, which we've covered above. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Pilot Energy hasn't been paying dividends, but its TSR of -72% exceeds its share price return of -81%, implying it has either spun-off a business, or raised capital at a discount; thereby providing additional value to shareholders.
A Different Perspective
We're pleased to report that Pilot Energy shareholders have received a total shareholder return of 81% over one year. Notably the five-year annualised TSR loss of 22% per year compares very unfavourably with the recent share price performance. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.
Of course Pilot Energy may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
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.