MHR.
There’s an enthusiastic group of supporters of MHR on one of the Value Investing boards. No doubt several, if not more, of them were buyers of the stock when it was trading for around 50c to $1.
So when it hit over $5 a share, MHR was a “5 to 10 bagger”. And I guess that has provided an incentive to stay with the company.
However, in the last 3 months MHR has shown a steady decline in price from about $5.20c to its current close at $3.95c. Personally that doesn’t altogether surprise me because in over 5 years MHR has Never reported a Bottom Line profit.
In fact I suspect that its dramatic rise to over $5 a share may have more to do with NAV per share rather than EPS, plus the expectations of the company’s future performance, especially related to the quality of its management.
In this regard, one of MHR’s major proponents on the Si boards recently had this to say ...
”The folks I don't understand are the dumb clucks selling at $4 when MHR has a $6 NAV that we know is going to go up.”
Well, the fact of the matter is that MHR has traded down to a low of $3.77c since its results were announced a few days ago. At no stage did it get anywhere close to $4.50c, let alone $6.
I suspect that the hard reality of MHR’s financial performance as a business is now the major factor affecting its market price.
For one thing, MHR is already LOSING Money at its EBITDA level. In its latest Quarterly its CoS + SG&A exceeded its Net Revenue of $9mil., by 22%, at -$2mil. In the previous Quarter it showed an EBITDA loss of -$2.9mil. on $6.8mil.
The question that could be asked is, “At what amount of future Net Revenue will MHR break even, or exceed, its combined compulsory costs of CoS + SG&A?”
And even when it does that, there is still the question of its Interest Expense, from its Long Term Debt, which is currently adding about -$1.2mil. to those compulsory costs.
In its latest Q2, MHR reported a Bottom Line Loss of -$5.5mil. Prior to that its Q1 Loss was -$3.8mil.
So things haven’t improved.
This brings us back to the principle of evaluating a stock from within its Balance Sheet compared to assessing the critical areas within its Income Statement.
The NAV, or Book Value, can really only benefit a shareholder on the sale or liquidation of the company. But the business performance of a company in terms of how much of its Revenue is left over at its Bottom Line is, IMO, a far more attractive proposition, especially when that Net Profit is above average and increasing with every financial report.
As we know, the Balance Sheet can be written in the form of the equation ...
SHARE CAPITAL + RESERVES = TOTAL ASSETS – TOTAL LIABILITIES = NET ASSETS
So if “SHARE CAPITAL” remains constant, the only way that “NET ASSETS” can improve is by the increase in “RESERVES”.
And as we also know, it’s the value of the Bottom Line of the Income Statement, after Dividends, that adds to the amount of “RESERVES”.
So I’d say, study the performance of the company from within its Income Statement in order to also determine how that will improve its Balance Sheet.
Now it could be that MHR will become profitable in the future, especially if its good management has anything to do with it. And when it starts to PROVE that, from within its financials, wouldn’t that be a preferable time to invest in the company ?
Until such time as that happens, wouldn’t one’s investing Revenue be better placed in a company currently showing good capital gain ? |
