Over the past year, penny share Eurasia Mining (LSE: EUA) has jumped 43% in price. But it still sells for less than 3p apiece.
Past price action is not necessarily an indication of what may come in future.
Still, it has me wondering: should I add the share to my portfolio?
Taking the long-term view
As a long-term investor, my reaction on seeing that impressive one-year performance is to wonder how typical it is of the longer trend – and what if anything may change that trend.
Over five years, the share price has sunk 27%.
Even that number does not capture the full story, as during that period the price actually touched 40p. So some investors today could be sitting on a much higher paper (or actual) loss than 27%.
The catalyst for the rising price over the past 12 months — including an 82% increase since the end of May — has been the ongoing question of whether lossmaking Eurasia will be able to offload its Russian assets and if so whether it could get a good price for them.
Along the way last year, it issued new shares as part of a trade finance agreement. Given the company’s financial position (net cash outflows in the first half were £1.2m), I see a risk of further shareholder dilution in future if Eurasia needs to bolster liquidity further.
So, what is the latest news of a possible sale?
It remains a wait and see, with the company repeatedly emphasising last year that there is no guarantee of any sale in future.
Investing, not speculating
Here, I think, is where being an investor not a speculator helps me make a clear decision, quickly.
Warren Buffett asks (in general, not specific to Eurasia) why someone might want to buy a share if they are not attracted by the idea of owning the whole company.
Eurasia has a market capitalisation of £72m. But the company had no turnover in the first half of last year, is consistently lossmaking and its key assets (in Russia) are basically stranded in a geopolitical quagmire over which it has limited, if any, control.
Would I want to buy that company in general, let alone for £72m? No. Absolutely not.
So, do I want to buy a share in EUA at today’s price, or almost any price? Again, no.
That does not mean that this could not be a very lucrative opportunity. If Eurasia can offload its assets at a good price, I reckon the share price could shoot up even from where it currently stands. Bear in mind that 40p price – just a few years ago, enough buyers and shareholders felt that was justifiable to make it happen.
But buying today in the uncertain prospect of an asset sale is far too speculative for me.
Trade financiers and speculators with a radically different risk appetite to me might do very well here (or very badly) at some point. As an investor, though, I will not be joining them.
This post was originally published on Motley Fool
