When you buy shares in a company, it’s worth keeping in mind the possibility that it could fail, and you could lose your money. But on the bright side, if you buy shares in a high quality company at the right price, you can gain well over 100%. For example, the Azimut Exploration Inc. (CVE:AZM) share price has soared 197% in the last half decade. Most would be very happy with that. On top of that, the share price is up 38% in about a quarter.
With just CA$160,498 worth of revenue in twelve months, we don’t think the market considers Azimut Exploration to have proven its business plan. 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 Azimut Exploration finds some valuable resources, before it runs out of money.
We think companies that have neither significant revenues nor profits are pretty high risk. You should be aware that there is always a chance that this sort of company will need to issue more shares to raise money to continue pursuing its business plan. While some such companies do very well over the long term, others become hyped up by promoters before eventually falling back down to earth, and going bankrupt (or being recapitalized). Azimut Exploration has already given some investors a taste of the sweet gains that high risk investing can generate, if your timing is right.
When it reported in May 2019 Azimut Exploration had minimal cash in excess of all liabilities consider its expenditure: just CA$832k to be specific. So if it has not already moved to replenish reserves, we think the near-term chances of a capital raising event are pretty high. It’s a testament to the popularity of the business plan that the share price gained 74% per year, over 5 years , despite the weak balance sheet. You can click on the image below to see (in greater detail) how Azimut Exploration’s cash levels have changed over time. The image below shows how Azimut Exploration’s balance sheet has changed over time; if you want to see the precise values, simply click on the image.
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. However you can take a look at whether insiders have been buying up shares. It’s often positive if so, assuming the buying is sustained and meaningful. You can click here to see if there are insiders buying.
A Different Perspective
It’s good to see that Azimut Exploration has rewarded shareholders with a total shareholder return of 64% in the last twelve months. That gain is better than the annual TSR over five years, which is 24%. Therefore it seems like sentiment around the company has been positive lately. Someone with an optimistic perspective could view the recent improvement in TSR as indicating that the business itself is getting better with time. Before spending more time on Azimut Exploration it might be wise to click here to see if insiders have been buying or selling shares.
But note: Azimut Exploration 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 CA exchanges.
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.
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. Thank you for reading.