The Magmatic Resources Limited (ASX:MAG) share price is down a rather concerning 35% in the last month. But that cannot eclipse the spectacular share price rise we've seen over the last twelve months. Indeed, the share price is up a whopping 780% in that time. So the recent fall isn't enough to negate the good performance. While winners often keep winning, it can pay to be cautious after a strong rise.
It really delights us to see such great share price performance for investors.
Check out our latest analysis for Magmatic Resources
We don't think Magmatic Resources's revenue of AU$46,378 is enough to establish significant demand. 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 Magmatic Resources 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 was already a significant chance that they would need more money for business development, and indeed they recently put themselves at the mercy of capital markets and raised equity. So the share price itself impacts the value of the shares (as it determines the cost of capital). While some such companies go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. Some Magmatic Resources investors have already had a taste of the sweet taste stocks like this can leave in the mouth, as they gain popularity and attract speculative capital.
Magmatic Resources only just had cash in excess of all liabilities when it last reported. So it's prudent that the management team has already moved to replenish reserves through the recent capital raising event. Given the current cash position, investors must really like its potential for the share price to be up 32% in the last year. You can see in the image below, how Magmatic Resources's cash levels have changed over time (click to see the values).
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. One thing you can do is check if company insiders are buying 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
It's nice to see that Magmatic Resources shareholders have gained 780% over the last year. The more recent returns haven't been as impressive as the longer term returns, coming in at just 2.3%. It seems likely the market is waiting on fundamental developments with the business before pushing the share price higher (or lower). I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. To that end, you should learn about the 7 warning signs we've spotted with Magmatic Resources (including 3 which is shouldn't be ignored) .