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Why I’m not buying shares in Sirius Minerals plc just yet

North Yorkshire-based Sirius Minerals (LSE: SXX) is a popular stock among UK investors. The company sits on the world’s largest and highest-grade deposit of polyhalite, used to make fertiliser. Sirius aims to become one of the world’s biggest producers of multi-nutrient fertilisers, aiming to unlock value for both shareholders and customers alike.

Feeding China’s growing appetite

While fertiliser may seem like a fairly boring product to many, when you consider its role in feeding the global population, the picture begins to look interesting. Indeed, China’s 1.4bn people are building up a considerable appetite, and the only way that we’ll be able to feed these people, along with the growing populations of Asia, Africa and South America, will be to enhance the output from farmland. That’s where high-grade fertiliser, such as Sirius’s key product POLY4 could play a role.

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Having said that, looking at the investment case, I won’t be buying shares in the company just yet. The project is still very much in its early stages and first production is not due to start until 2021. That means that, despite having a market capitalisation of £1.15bn, as of now, the company has no revenues and no profits.

I don’t mind adding exciting smaller companies to my portfolio occasionally, but having been burnt in the past from ‘story’ stocks, these days I seek out companies that are actually profitable. While I may occasionally miss out on some big gains, I’ve found this strategy results in fewer sizeable losses. Sirius could go on to be a wonderful investment for long-term investors, but for now, I’m happy to sit on the sidelines.

$6.5bn global market 

Another small-cap stock that I won’t be investing in is £108m market cap Tissue Regenix (LSE: TRX). Tissue Regenix specialises in regenerative medicine – engineering human and animal tissue that can be used to repair diseased or worn out body parts. The company is developing and commercialising a range of medical devices and treatments based on its patented dCELL process.

The size of the regenerative medical devices market is significant. Indeed, according to the company, the global market is expected to be worth $6.5bn by 2019. That makes the long-term story here intriguing, in my view. Having said that, I won’t be investing.

Tissue Regenix is one step ahead of Sirius Minerals in that it is generating sales. For the six month period to 30 June, the company generated revenue of $1.4m. However, during the period, the business also ran up administrative expenses of $6.3m, resulting in an operating loss of $5.4m. While City analysts expect revenue to pick up considerably this year and next, net losses of $12.2 and $8.7m are expected.

Tissue Regenix’s shares appear to be locked in a long-term downtrend at present, having fallen from around 30p in early 2014, to just 9p today. That can happen when profits fail to materialise. As such, I won’t be buying shares in Tissue Regenix for now. 

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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.