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Some stocks are best avoided. We really hate to see fellow investors lose their hard-earned money. Imagine if you held Solitario Zinc Corp. (NYSEMKT:XPL) for half a decade as the share price tanked 79%. And we doubt long term believers are the only worried holders, since the stock price has declined 25% over the last twelve months. The falls have accelerated recently, with the share price down 19% in the last three months.
With zero revenue generated over twelve months, we don’t think that Solitario Zinc has proved its business plan yet. You have to wonder why venture capitalists aren’t funding it. So it seems that the investors focused more on what could be, than paying attention to the current revenues (or lack thereof). For example, investors may be hoping that Solitario Zinc finds some valuable resources, before it runs out of money.
We think companies that have neither significant revenues nor profits are pretty high risk. There is almost always a chance they will need to raise more capital, and their progress – and share price – will dictate how dilutive that is to current holders. While some companies like this go on to deliver on their plan, making good money for shareholders, many end in painful losses and eventual de-listing. It certainly is a dangerous place to invest, as Solitario Zinc investors might realise.
Solitario Zinc has plenty of cash in the bank, with cash in excess of all liabilities sitting at US$10m, when it last reported (March 2019). This gives management the flexibility to drive business growth, without worrying too much about cash reserves. But since the share price has dropped 27% per year, over 5 years, it seems like the market might have been over-excited previously. You can see in the image below, how Solitario Zinc’s cash levels have changed over time (click to see the values).
It can be extremely risky to invest in a company that doesn’t even have revenue. There’s no way to know its value easily. Would it bother you if insiders were selling the stock? It would bother me, that’s for sure. It only takes a moment for you to check whether we have identified any insider sales recently.
A Different Perspective
Investors in Solitario Zinc had a tough year, with a total loss of 25%, against a market gain of about 6.2%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. However, the loss over the last year isn’t as bad as the 27% per annum loss investors have suffered over the last half decade. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. If you would like to research Solitario Zinc in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
But note: Solitario Zinc may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned. Thank you for reading.