Lithium Australia Limited (ASX:LIT) shareholders might be concerned after seeing the share price drop 11% in the last quarter. But that shouldn't obscure the pleasing returns achieved by shareholders over the last three years. After all, the share price is up a market-beating 65% in that time.
So let's assess the underlying fundamentals over the last 3 years and see if they've moved in lock-step with shareholder returns.
See our latest analysis for Lithium Australia
With just AU$1,743,292 worth of revenue in twelve months, we don't think the market considers Lithium Australia to have proven its business plan. So it seems shareholders are too busy dreaming about the progress to come than dwelling on the current (lack of) revenue. It seems likely some shareholders believe that Lithium Australia will find or develop a valuable new mine before too long.
As a general rule, if a company doesn't have much revenue, and it loses money, then it is a high risk investment. You should be aware that there is always a chance that this sort of company will need to issue more shares to raise money to continue pursuing its business plan. While some such companies go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. Of course, if you time it right, high risk investments like this can really pay off, as Lithium Australia investors might know.
When it reported in December 2021 Lithium Australia had minimal cash in excess of all liabilities consider its expenditure: just AU$937k to be specific. So if it hasn't remedied the situation already, it will almost certainly have to raise more capital soon. Given how low on cash it got, investors must really like its potential for the share price to be up 116% per year, over 3 years. You can see in the image below, how Lithium Australia'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. You can click here to see if there are insiders buying.
A Different Perspective
Lithium Australia shareholders are down 39% for the year, but the market itself is up 0.6%. 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. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 6% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. It's always interesting to track share price performance over the longer term. But to understand Lithium Australia better, we need to consider many other factors. For example, we've discovered 5 warning signs for Lithium Australia (2 make us uncomfortable!) that you should be aware of before investing here.