It might be of some concern to shareholders to see the Ionic Rare Earths Limited (ASX:IXR) share price down 23% in the last month. But over five years returns have been remarkably great. To be precise, the stock price is 400% higher than it was five years ago, a wonderful performance by any measure. So it might be that some shareholders are taking profits after good performance. Only time will tell if there is still too much optimism currently reflected in the share price. Unfortunately not all shareholders will have held it for the long term, so spare a thought for those caught in the 43% decline over the last twelve months.
So let’s investigate and see if the longer term performance of the company has been in line with the underlying business’ progress.
Check out our latest analysis for Ionic Rare Earths
Ionic Rare Earths recorded just AU$2,761,222 in revenue over the last twelve months, which isn’t really enough for us to consider it to have a proven product. As a result, we think it’s unlikely shareholders are paying much attention to current revenue, but rather speculating on growth in the years to come. It seems likely some shareholders believe that Ionic Rare Earths 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 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 do very well over the long term, others become hyped up by promoters before eventually falling back down to earth, and going bankrupt (or being recapitalized). Some Ionic Rare Earths 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.
Ionic Rare Earths only just had cash in excess of all liabilities when it last reported. So it is a good thing that the company has looked to remedy the situation by raising more capital recently. It’s a testament to the popularity of the business plan that the share price gained 50% per year, over 5 years , despite the recent dilution. The image below shows how Ionic Rare Earths’ balance sheet has changed over time; if you want to see the precise values, simply click on the image.
In reality it’s hard to have much certainty when valuing a business that has neither revenue or profit. One thing you can do is check if company insiders are buying shares. It’s usually a positive if they have, as it may indicate they see value in the stock. Luckily we are in a position to provide you with this free chart of insider buying (and selling).
A Different Perspective
While the broader market gained around 6.3% in the last year, Ionic Rare Earths shareholders lost 43%. 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. Longer term investors wouldn’t be so upset, since they would have made 38%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. To that end, you should be aware of the 4 warning signs we’ve spotted with Ionic Rare Earths .
We will like Ionic Rare Earths better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on Australian exchanges.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
