Investors are understandably disappointed when a stock they own falls in value. But it’s hard to avoid some disappointing investments when the overall market is in a slump. The Silver Elephant Mining Corp. (TSE:ELEF) is down 90% in three years, but the total shareholder return is 560% if you include the dividend. And that total return actually exceeds the market return of 48%. And more recent buyers are struggling too, with a 46% drop over the past year. Shareholders have had an even tougher time recently, with the share price falling 30% in the past 90 days. We really hope that anyone who weathers that price crash has a diversified portfolio. Even if you lose money, you don’t have to lose the lesson.
So let’s see if the company’s longer-term performance is in line with the underlying company’s progress.
Check out our latest analysis for Silver Elephant Mining
Silver Elephant Mining has not yet reported any revenue, so it is as much a business idea as it is a real business. This state of affairs suggests that venture capitalists will not provide funds on attractive terms. So it seems that shareholders are too busy dreaming about the progress to come than dwelling on the current (lack of) earnings. For example, they hope that Silver Elephant Mining will find fossil fuels with an exploration program before the money runs out.
We think companies that don’t have significant revenues or profits are at a pretty high risk. There was already a good chance that they would need more money for business development, and indeed they have recently put themselves at the mercy of the capital markets and raised equity capital. Thus, the share price itself affects the value of the shares (since it determines the cost of capital). While some such companies continue to make revenues, profits and generate value, others get rattled by hopeful naives before finally going out of business. Silver Elephant Mining has already given some investors a taste of the bitter losses that high-risk investments can cause.
According to our records, Silver Elephant Mining had more debt than cash when it last reported. That made it extremely risky in our opinion. But with the share price falling 24% per annum, over 3 years, it’s probably fair to say that some shareholders no longer believe the company will succeed or are concerned about dilution from the recent cash injection. The image below shows how the balance of Silver Elephant Mining has changed over time; if you want to see the exact values just click on the image.
It can be extremely risky to invest in a company that doesn’t even have any revenue. There is no way to know its value easily. Would you mind if insiders sold the shares? I would feel more nervous about the company if it did. It will take nothing but a moment of your time to see if we pick up insider selling.
What about Total Shareholder Return (TSR)?
We would be remiss not to mention the difference between Silver Elephant Mining’s total shareholder return (TSR) and his return on the share price. Arguably, the TSR is a more complete return calculation because it takes into account the value of dividends (as if reinvested), along with the hypothetical value of any discounted capital offered to shareholders. Silver Elephant Mining has not paid a dividend, but its TSR of 560% exceeds its -90% return on share price, implying it spun off a company or raised capital at a discount; giving shareholders added value.
a different perspective
Investors in Silver Elephant Mining had a tough year, with an overall loss of 46%, against a market gain of around 8.8%. Even the share prices of good stocks sometimes fall, but we want to see improvements in a company’s fundamental metrics before we get too interested. Longer-term investors wouldn’t be too upset considering they would have earned 61% each year over five years. If the fundamentals continue to indicate long-term sustainable growth, the current sell-off may be an opportunity worth considering. I find it very interesting to look at stock price over the long term as a measure of company performance. But to get real insight, we also have to take other information into account. For example, we discovered 3 warning signs for Silver Elephant Mining (2 make us uncomfortable!) that you should know before investing here.
Silver Elephant Mining isn’t the only stock insiders buy. For those who like to find winning investments this free list of growing companies with recent insider purchases could be the ticket.
Please note that the market returns quoted in this article reflect the market-weighted average returns of stocks currently traded on Canadian exchanges.
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This Simply Wall St article is general in nature. We only comment based on historical data and analyst forecasts using an unbiased methodology and our articles are not intended as financial advice. It does not constitute a recommendation to buy or sell any stock and does not take into account your objectives or your financial situation. We aim to provide you with long-term focused analytics driven by fundamental data. Please note that our analysis may not take into account the latest price sensitive company announcements or quality material. Simply Wall St has no exposure to the listed stocks.
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