2023 has seen a sharp decline in the value of Polymetal (LSE: POLY), ahead of a planned delisting from the London stock market next month.
What would have happened if I had put my money into Polymetal shares a decade ago – and what forward-looking lessons might that offer investors today?
The share price performance has been abysmal, in short.
Over the past 10 years, Polymetal shares have lost 70% of their value.
That is not the full story, however.
As an investor, owning shares can potentially be financially rewarding in a couple of different ways. A share price gain is one. But dividends can also improve one’s return.
On the dividend front, Polymetal shares have been impressive performers over the long run.
Last year, none were paid. But the prior year saw dividend per share of $0.45. The year before that, the payout per share was $1.29. Over the last decade, the per-share dividends paid by the company add up to $4.91. At today’s exchange rate, that is around £3.81.
Even including that, I would still be underwater on an investment in Polymetal shares a decade ago – but by much less than suggested by share price alone. My holding today and collected dividends would be worth around 90% of my initial investment.
With Polymetal shares about to disappear from the London market, however, why would I be reflecting on the past decade’s performance of a share I do not own?
One thing that can help set great investors like Warren Buffett apart from the crowd is that they learn from mistakes – not only their own, but also those of other people.
Ultimately, if I had put money into Polymetal shares a decade ago, it would have been an unrewarding decision.
But the dramatic fall in share price would have been partly compensated for by the company’s stream of chunky dividends over much of the past decade. When considering whether to add shares to my portfolio, I need to consider both growth and income prospects.
With its mining focus, Polymetal’s fortunes are party tied to the metals cycle. In cyclical industries like mining, oil production and housebuilding, high selling prices can propel shares upwards. But once those prices fall – for example because the lofty cost reduces customer demand – that can hurt profits. As the 10-year history of Polymetal shares illustrates, in a cyclical industry like mining, getting in ahead of the curve can be much more rewarding than buying in at a peak.
Last year, the company made a post-tax loss. But the prior year’s profit was bigger than the current market capitalisation. Indeed, using a historical price-to-earnings (P/E) ratio, Polymetal shares could look positively cheap.
That is a good reminder that, although a P/E ratio can be a helpful analytical tool for investors, it is never a good idea to use it in isolation. One also needs to consider other factors when evaluating a possible share purchase, from a company’s balance sheet to the risks involved.