The Twenty Seven (ASX:TSC) Share Price Is Up 100% And Shareholders Are Holding On

If you want to compound wealth in the stock market, you can do so by buying an index fund. But one can do better than that by picking better than average stocks (as part of a diversified portfolio). For example, the Twenty Seven Co. Limited (ASX:TSC) share price is up 100% in the last year, clearly besting the market return of around 20% (not including dividends). So that should have shareholders smiling. Unfortunately the longer term returns are not so good, with the stock falling 20% in the last three years.

See our latest analysis for Twenty Seven

With just AU$38,944 worth of revenue in twelve months, we don't think the market considers Twenty Seven 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). For example, they may be hoping that Twenty Seven finds fossil fuels with an exploration program, before it runs out of money.

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 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 such companies go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. Twenty Seven has already given some investors a taste of the sweet gains that high risk investing can generate, if your timing is right.

Twenty Seven had cash in excess of all liabilities of just AU$217k when it last reported (June 2019). So if it hasn't remedied the situation already, it will almost certainly have to raise more capital soon. It's a testament to the popularity of the business plan that the share price gained 100% in the last year , despite the weak balance sheet. You can click on the image below to see (in greater detail) how Twenty Seven's cash levels have changed over time. You can click on the image below to see (in greater detail) how Twenty Seven's cash levels have changed over time.

Of course, the truth is that it is hard to value companies without much revenue or profit. However you can take a look at whether insiders have been buying up 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

We're pleased to report that Twenty Seven shareholders have received a total shareholder return of 100% over one year. There's no doubt those recent returns are much better than the TSR loss of 15% per year over five years. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. 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. Be aware that Twenty Seven is showing 6 warning signs in our investment analysis , and 4 of those can't be ignored...

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 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.