As every investor would know, you don’t hit a homerun every time you swing. But it would be foolish to simply accept every extremely large loss as an inevitable part of the game. So spare a thought for the long term shareholders of AM Resources Corp. (CVE:AMR); the share price is down a whopping 78% in the last twelve months. A loss like this is a stark reminder that portfolio diversification is important. AM Resources may have better days ahead, of course; we’ve only looked at a one year period.
We don’t think AM Resources’s revenue of CA$1,503,641 is enough to establish significant demand. 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). It seems likely some shareholders believe that AM Resources will discover or develop fossil fuel before too long.
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 companies like this go on to deliver on their plan, making good money for shareholders, many end in painful losses and eventual de-listing. AM Resources has already given some investors a taste of the bitter losses that high risk investing can cause.
AM Resources had liabilities exceeding cash by CA$1.6m when it last reported in September 2019, according to our data. That puts it in the highest risk category, according to our analysis. But since the share price has dived -78% in the last year , it looks like some investors think it’s time to abandon ship, so to speak. You can see in the image below, how AM Resources’s cash levels have changed over time (click to see the values).
Of course, the truth is that it is hard to value companies without much revenue or profit. What if insiders are ditching the stock hand over fist? I’d like that just about as much as I like to drink milk and fruit juice mixed together. It only takes a moment for you to check whether we have identified any insider sales recently.
A Different Perspective
We doubt AM Resources shareholders are happy with the loss of 78% over twelve months. That falls short of the market, which lost 12%. That’s disappointing, but it’s worth keeping in mind that the market-wide selling wouldn’t have helped. With the stock down 25% over the last three months, the market doesn’t seem to believe that the company has solved all its problems. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Take risks, for example – AM Resources has 6 warning signs (and 4 which are concerning) we think you should know about.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
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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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.