Imagine Owning Venture Minerals (ASX:VMS) While The Price Tanked 55%

Generally speaking long term investing is the way to go. But that doesn't mean long term investors can avoid big losses. To wit, the Venture Minerals Limited (ASX:VMS) share price managed to fall 55% over five long years. We certainly feel for shareholders who bought near the top. On the other hand the share price has bounced 5.9% over the last week.

View our latest analysis for Venture Minerals

With just AU$59,660 worth of revenue in twelve months, we don't think the market considers Venture Minerals to have proven its business plan. This state of affairs suggests that venture capitalists won't provide funds on attractive terms. 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 Venture Minerals will find or develop a valuable new mine before too long.

We think companies that have neither significant revenues nor profits are pretty high risk. 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 companies like this go on to deliver on their plan, making good money for shareholders, many end in painful losses and eventual de-listing. It certainly is a dangerous place to invest, as Venture Minerals investors might realise.

When it last reported its balance sheet in June 2019, Venture Minerals had cash in excess of all liabilities of AU$3.9m. 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 15% per year, over 5 years , it seems likely that the need for cash is weighing on investors' minds. You can click on the image below to see (in greater detail) how Venture Minerals's cash levels have changed over time. You can click on the image below to see (in greater detail) how Venture Minerals's cash levels have changed over time.

Of course, the truth is that it is hard to value companies without much revenue or profit. What if insiders are ditching the stock hand over fist? It would bother me, that's for sure. It only takes a moment for you to check whether we have identified any insider sales recently.

What about the Total Shareholder Return (TSR)?

Investors should note that there's a difference between Venture Minerals's total shareholder return (TSR) and its share price change, which we've covered above. Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. We note that Venture Minerals's TSR, at -53% is higher than its share price return of -55%. When you consider it hasn't been paying a dividend, this data suggests shareholders have benefitted from a spin-off, or had the opportunity to acquire attractively priced shares in a discounted capital raising.

A Different Perspective

Investors in Venture Minerals had a tough year, with a total loss of 10.0%, against a market gain of about 25%. 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. However, the loss over the last year isn't as bad as the 14% per annum loss investors have suffered over the last half decade. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. 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. For example, we've discovered 4 warning signs for Venture Minerals (2 are potentially serious!) that you should be aware of before investing here.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU exchanges.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.