Imagine Owning Ascent Resources (LON:AST) And Taking A 98% Loss Square On The Chin

Long term investing is the way to go, but that doesn’t mean you should hold every stock forever. We don’t wish catastrophic capital loss on anyone. Imagine if you held Ascent Resources plc (LON:AST) for half a decade as the share price tanked 98%. And some of the more recent buyers are probably worried, too, with the stock falling 70% in the last year. Furthermore, it’s down 60% in about a quarter. That’s not much fun for holders.

We really hope anyone holding through that price crash has a diversified portfolio. Even when you lose money, you don’t have to lose the lesson.

See our latest analysis for Ascent Resources

Ascent Resources recorded just UK£903,000 in revenue over the last twelve months, which isn’t really enough for us to consider it to have a proven product. We can’t help wondering why it’s publicly listed so early in its journey. Are venture capitalists not interested? As a result, we think it’s unlikely shareholders are paying much attention to current revenue, but rather speculating on growth in the years to come. For example, they may be hoping that Ascent Resources finds fossil fuels with an exploration program, before it runs out of money.

As a general rule, if a company doesn’t have much revenue, and it loses money, then it is a high risk investment. 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 such companies go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. Ascent Resources has already given some investors a taste of the bitter losses that high risk investing can cause.

Ascent Resources had liabilities exceeding cash by UK£337k when it last reported in June 2019, according to our data. That makes it extremely high risk, in our view. But with the share price diving 56% per year, over 5 years , it’s probably fair to say that some shareholders no longer believe the company will succeed. The image below shows how Ascent Resources’s balance sheet has changed over time; if you want to see the precise values, simply click on the image. The image below shows how Ascent Resources’s balance sheet has changed over time; if you want to see the precise values, simply click on the image.

AIM:AST Historical Debt, December 21st 2019
AIM:AST Historical Debt, December 21st 2019

In reality it’s hard to have much certainty when valuing a business that has neither revenue or profit, forcing investors to rely on other measures. For example, we’ve discovered 6 warning signs for Ascent Resources (of which 2 are major) which any shareholder or potential investor should be aware of.

A Different Perspective

While the broader market gained around 21% in the last year, Ascent Resources shareholders lost 70%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year’s performance caps off a bad run, with the shareholders facing a total loss of 56% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.

If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on GB exchanges.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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. 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.