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Investing in Patrys (ASX:PAB) five years ago would have delivered you a 448% gain

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Patrys Limited (ASX:PAB) shareholders might be concerned after seeing the share price drop 14% in the last quarter. But that doesn't change the fact that the returns over the last half decade have been spectacular. In fact, during that period, the share price climbed 425%. Impressive! Arguably, the recent fall is to be expected after such a strong rise. Of course what matters most is whether the business can improve itself sustainably, thus justifying a higher price.

So let's assess the underlying fundamentals over the last 5 years and see if they've moved in lock-step with shareholder returns.

Check out our latest analysis for Patrys

With just AU$1,338,377 worth of revenue in twelve months, we don't think the market considers Patrys to have proven its business plan. 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 Patrys has the funding to invent a new product 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. 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 companies like this go on to deliver on their plan, making good money for shareholders, many end in painful losses and eventual de-listing. Some Patrys 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.

When it last reported its balance sheet in June 2021, Patrys had cash in excess of all liabilities of AU$10m. That's not too bad but management may have to think about raising capital or taking on debt, unless the company is close to breaking even. With the share price up 48% per year, over 5 years , the market is seems hopeful about the potential, despite the cash burn. You can see in the image below, how Patrys' cash levels have changed over time (click to see the values).

debt-equity-history-analysis
debt-equity-history-analysis

In reality it's hard to have much certainty when valuing a business that has neither revenue or profit. Given that situation, many of the best investors like to check if insiders have been buying shares. It's often positive if so, assuming the buying is sustained and meaningful. Luckily we are in a position to provide you with this free chart of insider buying (and selling).

What about the Total Shareholder Return (TSR)?

Investors should note that there's a difference between Patrys' 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 Patrys' TSR, at 448% is higher than its share price return of 425%. 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

We're pleased to report that Patrys shareholders have received a total shareholder return of 57% over one year. That's better than the annualised return of 41% over half a decade, implying that the company is doing better recently. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. It's always interesting to track share price performance over the longer term. But to understand Patrys better, we need to consider many other factors. To that end, you should learn about the 5 warning signs we've spotted with Patrys (including 1 which shouldn't be ignored) .

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

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

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.

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