Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
Stock pickers are generally looking for stocks that will outperform the broader market. And while active stock picking involves risks (and requires diversification) it can also provide excess returns. For example, the Moreton Resources Limited (ASX:MRV) share price is up 50% in the last 5 years, clearly besting than the market return of around 12% (ignoring dividends).
See our latest analysis for Moreton Resources
Moreton Resources didn't have any revenue in the last year, so it's fair to say it doesn't yet have a proven product (or at least not one people are paying for). So it seems shareholders are too busy dreaming about the progress to come than dwelling on the current (lack of) revenue. For example, they may be hoping that Moreton Resources finds fossil fuels with an exploration program, before it runs out of money.
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.
Moreton Resources had liabilities exceeding cash by AU$24,538,347 when it last reported in December 2018, according to our data. That puts it in the highest risk category, according to our analysis. So we're surprised to see the stock up 8.4% per year, over 5 years, but we're happy for holders. Investors must really like its potential. You can see in the image below, how Moreton Resources's cash levels have changed over time (click to see the values).
In reality it's hard to have much certainty when valuing a business that has neither revenue or profit. However you can take a look at whether insiders have been buying up shares. It's often positive if so, assuming the buying is sustained and meaningful. Luckily we are in a position to provide you with this free chart of insider buying (and selling).
What about the Total Shareholder Return (TSR)?
We'd be remiss not to mention the difference between Moreton Resources's total shareholder return (TSR) and its share price return. 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. Moreton Resources hasn't been paying dividends, but its TSR of 61% exceeds its share price return of 50%, implying it has either spun-off a business, or raised capital at a discount; thereby providing additional value to shareholders.