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Generally speaking the aim of active stock picking is to find companies that provide returns that are superior to the market average. And the truth is, you can make significant gains if you buy good quality businesses at the right price. For example, long term MAG Silver Corp. ( TSE:MAG ) shareholders have enjoyed a 54% share price rise over the last half decade, well in excess of the market return of around 0.07% (not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 17% in the last year.
MAG Silver hasn't yet reported any revenue, so it's as much a business idea as an actual business. 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 MAG Silver 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 companies like this go on to deliver on their plan, making good money for shareholders, many end in painful losses and eventual de-listing. MAG Silver has already given some investors a taste of the sweet gains that high risk investing can generate, if your timing is right.
When it last reported its balance sheet in March 2019, MAG Silver could boast a strong position, with cash in excess of all liabilities of US$125m. That allows management to focus on growing the business, and not worry too much about raising capital. And given that the share price has shot up 9.0% per year, over 5 years, its fair to say investors are liking management's vision for the future. The image below shows how MAG Silver's balance sheet has changed over time; if you want to see the precise values, simply click on the image. You can see in the image below, how MAG Silver'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. Given that situation, many of the best investors like to check if insiders have been buying shares. It's usually a positive if they have, as it may indicate they see value in the stock. You can click here to see if there are insiders buying.
A Different Perspective
We're pleased to report that MAG Silver shareholders have received a total shareholder return of 17% over one year. That gain is better than the annual TSR over five years, which is 9.0%. Therefore it seems like sentiment around the company has been positive lately. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. If you would like to research MAG Silver in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA exchanges.
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.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org . 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. Thank you for reading.