As every investor would know, you don’t hit a homerun every time you swing. But it should be a priority to avoid stomach churning catastrophes, wherever possible. So we hope that those who held AM Resources Corp. (CVE:AMR) during the last year don’t lose the lesson, in addition to the 71% hit to the value of their shares. A loss like this is a stark reminder that portfolio diversification is important. We wouldn’t rush to judgement on AM Resources because we don’t have a long term history to look at. Shareholders have had an even rougher run lately, with the share price down 38% in the last 90 days.
AM Resources recorded just CA$1,503,641 in revenue over the last twelve months, which isn’t really enough for us to consider it to have a proven product. This state of affairs suggests that venture capitalists won’t provide funds on attractive terms. So it seems shareholders are too busy dreaming about the progress to come than dwelling on the current (lack of) revenue. It seems likely some shareholders believe that AM Resources will discover or develop fossil fuel before too long.
Companies that lack both meaningful revenue and profits are usually considered high risk. There is usually a significant chance that they will need more money for business development, putting them at the mercy of capital markets. So the share price itself impacts the value of the shares (as it determines the cost of capital). While some such companies go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. Some AM Resources investors have already had a taste of the bitterness stocks like this can leave in the mouth.
Our data indicates that AM Resources had CA$1.6m more in total liabilities than it had cash, when it last reported in September 2019. That makes it extremely high risk, in our view. But since the share price has dived -71% in the last year , it looks like some investors think it’s time to abandon ship, so to speak. The image below shows how AM Resources’s balance sheet has changed over time; if you want to see the precise values, simply click on the image. You can see in the image below, how AM Resources’s cash levels have changed over time (click to see the values).
In reality it’s hard to have much certainty when valuing a business that has neither revenue or profit. Would it bother you if insiders were selling the stock? I would feel more nervous about the company if that were so. You can click here to see if there are insiders selling.
A Different Perspective
While AM Resources shareholders are down 71% for the year, the market itself is up 14%. While the aim is to do better than that, it’s worth recalling that even great long-term investments sometimes underperform for a year or more. The share price decline has continued throughout the most recent three months, down 38%, suggesting an absence of enthusiasm from investors. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Be aware that AM Resources is showing 6 warning signs in our investment analysis , and 3 of those don’t sit too well with us…
Of course AM Resources may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA exchanges.
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