Sirius Minerals shares have fallen 50% in six months. What’s the best move now?

Tempted by the Sirius Minerals plc (LON: SXX) share price? Read this now.

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

When investing, your capital is at risk. The value of your investments can go down as well as up and you may get back less than you put in.

Read More

The content of this article is provided for information purposes only and is not intended to be, nor does it constitute, any form of personal advice. Investments in a currency other than sterling are exposed to currency exchange risk. Currency exchange rates are constantly changing, which may affect the value of the investment in sterling terms. You could lose money in sterling even if the stock price rises in the currency of origin. Stocks listed on overseas exchanges may be subject to additional dealing and exchange rate charges, and may have other tax implications, and may not provide the same, or any, regulatory protection as in the UK.

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More.

Sirius Minerals (LSE: SXX) shares have been a big disappointment over the last six months. Trading at around 20p back in mid-February, the share price now stands at just over 9p, meaning the stock has lost over half its value. Is this pullback a buying opportunity? Here’s my view.

Project funding problems

One of the main reasons that SXX shares have fallen recently is to do with project financing. The company needs to raise $500m to unlock a $2.5bn funding facility it has agreed with JP Morgan and it had planned to raise this money through a bond offering. However, on 6 August, the company advised that it had cancelled the bond offering due to unfavourable market conditions. This development adds considerable uncertainty to the investment case and as a result investors have dumped the shares.

Jam tomorrow

Personally, I’m not all that surprised by this recent development. As I’ve often noted in the past, Sirius Minerals is a classic ‘jam tomorrow’ type of stock. Yes, there’s an exciting long-term story (the company could eventually be one of the largest fertiliser producers in the world) that could generate big wealth for investors. Yet at the same time, there are also a lot of things that could go wrong. I’ve said before that due to the complexity of the project, Sirius is likely to experience both funding problems and operational problems and the issues that the company is facing right now are a good example of this.

When I last covered SXX in May, the shares were trading at 16p. At the time, I stated that I saw the stock as quite risky and that I would be continuing to avoid it. Today, at 9p, my view remains the same. Sure, the Sirius share price could bounce if the company announces some good news, but in my view, an investment in SXX is not worth the risk. With profits still years away (if the company can sort out its financing issues), you may as well take your money to the casino.

Making money from small-caps

If you’re looking to make consistent profits from smaller companies, a much better strategy, in my view, is to focus on companies that are already profitable.

If you can find companies that are generating strong earnings growth, are highly profitable (a high return on capital employed), with strong cash flow, low debt, and trading at reasonable valuations, you’ll give yourself a good chance of generating a decent return on your money if you’re willing to invest for a few years. Importantly, you’ll also reduce the chances of losing a lot of money, which is important if you want to be a successful investor.

Right now, there are plenty of stocks with these attributes that are listed on the AIM market. If you’re interested in learning about some of these types of companies, tune in tomorrow and I’ll highlight two small-cap stocks that I like the look of right now.

Should you invest, the value of your investment may rise or fall and your capital is at risk. Before investing, your individual circumstances should be assessed. Consider taking independent financial advice.

Edward Sheldon has no position in any shares mentioned. The Motley Fool UK has no position in any of the shares mentioned. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

More on Investing Articles

A person holding onto a fan of twenty pound notes
Investing Articles

A high-yield dividend ETF and an investment trust to consider this November!

Investors wanting to boost their passive income could benefit from investigating these high-yield funds and trusts, says Royston Wild.

Read more »

Investing Articles

2 of my favourite, cheap FTSE 100 growth shares this November!

These FTSE 100 growth shares could be great long-term picks to consider, reckons Royston Wild. At current prices he thinks…

Read more »

Investing Articles

Up 26%, can the BT share price really push higher still?

The BT share price has surged on several catalysts in 2024, but there’s evidence to suggest that the stock could…

Read more »

Man writing 'now' having crossed out 'later', 'tomorrow' and 'next week'
Investing Articles

What are the best dividend shares to buy right now?

As shares in B&M European Value Retail have fallen, the dividend yield has reached a 10-year high. Should investors be…

Read more »

Surprised Black girl holding teddy bear toy on Christmas
Investing Articles

My favourite FTSE 100 passive income stock that keeps the Christmas coffers full

The holiday season is expensive and can leave many consumers struggling to make ends meet. Here’s how I use a…

Read more »

Investing Articles

The latest growth forecasts suggest the Glencore share price will hit 555p!

Harvey Jones has been disappointed by the performance of the Glencore share price since he bought the commodity stock last…

Read more »

Dividend Shares

A closer look at the 11% dividend yield forecast for Phoenix Group shares

Phoenix Group shares have one of the highest dividend yields in the FTSE 100 index today. Could this be a…

Read more »

Investing Articles

If I’d put £25,000 into the FTSE 350 at the start of 2024, here’s how much I’d have today!

Many FTSE shares have rebounded this year as interest rates look set to keep heading lower and market appetite for…

Read more »