Many investors define successful investing as beating the market average over the long term. But if you try your hand at stock picking, your risk returning less than the market. Unfortunately, that’s been the case for longer term Ansar Financial and Development Corporation (CSE:AFD) shareholders, since the share price is down 27% in the last three years, falling well short of the market decline of around 5.1%. It’s down 3.5% in the last seven days.
Ansar Financial and Development recorded just CA$123,459 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 Ansar Financial and Development will significantly advance the business plan before too long.
We think companies that have neither significant revenues nor profits are pretty 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 to raise equity. 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.
When it last reported its balance sheet in December 2019, Ansar Financial and Development could boast a strong position, with cash in excess of all liabilities of CA$1.1m. That allows management to focus on growing the business, and not worry too much about raising capital. But since the share price has dropped 9.8% per year, over 3 years , it seems like the market might have been over-excited previously. You can see in the image below, how Ansar Financial and Development’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’d like that just about as much as I like to drink milk and fruit juice mixed together. It costs nothing but a moment of your time to see if we are picking up on any insider selling.
A Different Perspective
The last twelve months weren’t great for Ansar Financial and Development shares, which performed worse than the market, costing holders 11%. The market shed around 4.4%, no doubt weighing on the stock price. The three-year loss of 9.8% per year isn’t as bad as the last twelve months, suggesting that the company has not been able to convince the market it has solved its problems. We would be wary of buying into a company with unsolved problems, although some investors will buy into struggling stocks if they believe the price is sufficiently attractive. It’s always interesting to track share price performance over the longer term. But to understand Ansar Financial and Development better, we need to consider many other factors. For example, we’ve discovered 4 warning signs for Ansar Financial and Development (3 can’t be ignored!) that you should be aware of before investing here.
We will like Ansar Financial and Development better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA exchanges.
Love or hate this article? Concerned about the content? Get in touch with us directly. Alternatively, email email@example.com.
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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Thank you for reading.