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Lodestar Minerals Limited (ASX:LSR) shareholders should be happy to see the share price up 29% in the last month. But that isn't much consolation for the painful drop we've seen in the last year. To wit, the stock has dropped 73% over the last year. So the rise may not be much consolation. The bigger issue is whether the company can sustain the momentum in the long term.
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View our latest analysis for Lodestar Minerals
We don't think Lodestar Minerals's revenue of AU$85,198 is enough to establish significant demand. You have to wonder why venture capitalists aren't funding it. So it seems shareholders are too busy dreaming about the progress to come than dwelling on the current (lack of) revenue. For example, investors may be hoping that Lodestar Minerals finds some valuable resources, before it runs out of money.
As a general rule, if a company doesn't have much revenue, and it loses money, then it is a high risk investment. 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). Some Lodestar Minerals investors have already had a taste of the bitterness stocks like this can leave in the mouth.
Lodestar Minerals had liabilities exceeding cash by AU$116,555 when it last reported in December 2018, according to our data. That makes it extremely high risk, in our view. But since the share price has dived -73% in the last year, it looks like some investors think it's time to abandon ship, so to speak. The image below shows how Lodestar Minerals's balance sheet has changed over time; if you want to see the precise values, simply click on the image.
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. What if insiders are ditching the stock hand over fist? I would feel more nervous about the company if that were so. You can click here to see if there are insiders selling.
What about the Total Shareholder Return (TSR)?
We'd be remiss not to mention the difference between Lodestar Minerals's total shareholder return (TSR) and its share price return. The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. Lodestar Minerals hasn't been paying dividends, but its TSR of -73% exceeds its share price return of -73%, implying it has either spun-off a business, or raised capital at a discount; thereby providing additional value to shareholders.