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In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But its virtually certain that sometimes you will buy stocks that fall short of the market average returns. We regret to report that long term Southern Hemisphere Mining Limited (ASX:SUH) shareholders have had that experience, with the share price dropping 23% in three years, versus a market return of about 48%. The share price has dropped 32% in three months.
With that in mind, it's worth seeing if the company's underlying fundamentals have been the driver of long term performance, or if there are some discrepancies.
Check out our latest analysis for Southern Hemisphere Mining
Southern Hemisphere Mining hasn't yet reported any revenue, so it's as much a business idea as an actual business. This state of affairs suggests that venture capitalists won't provide funds on attractive terms. So it seems that the investors focused more on what could be, than paying attention to the current revenues (or lack thereof). It seems likely some shareholders believe that Southern Hemisphere Mining will find or develop a valuable new mine before too long.
Companies that lack both meaningful revenue and profits are usually considered 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 to raise 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.
Southern Hemisphere Mining had cash in excess of all liabilities of AU$1.3m when it last reported (June 2021). While that's nothing to panic about, there is some possibility the company will raise more capital, especially if profits are not imminent. With the share price down 7% per year, over 3 years , it seems likely that the need for cash is weighing on investors' minds. The image below shows how Southern Hemisphere Mining'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. Would it bother you if insiders were selling the stock? I'd like that just about as much as I like to drink milk and fruit juice mixed together. It costs nothing but a moment of your time to see if we are picking up on any insider selling.