Anglo African Oil & Gas plc (LON:AAOG) shareholders should be happy to see the share price up 23% in the last month. But that doesn’t change the fact that the returns over the last year have been disappointing. Like a receding glacier in a warming world, the share price has melted 61% in that period. It’s not that amazing to see a bounce after a drop like that. Arguably, the fall was overdone.
We don’t think Anglo African Oil & Gas’s revenue of UK£200,649 is enough to establish significant demand. 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. It seems likely some shareholders believe that Anglo African Oil & Gas 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. 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). It certainly is a dangerous place to invest, as Anglo African Oil & Gas investors might realise.
Our data indicates that Anglo African Oil & Gas had UK£7.3m more in total liabilities than it had cash, when it last reported in June 2019. That puts it in the highest risk category, according to our analysis. But with the share price diving 61% in the last year , it’s probably fair to say that some shareholders no longer believe the company will succeed. The image below shows how Anglo African Oil & Gas’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 Anglo African Oil & Gas’s balance sheet has changed over time.
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 would feel more nervous about the company if that were so. You can click here to see if there are insiders selling.
A Different Perspective
Given that the market gained 7.5% in the last year, Anglo African Oil & Gas shareholders might be miffed that they lost 61%. While the aim is to do better than that, it’s worth recalling that even great long-term investments sometimes underperform for a year or more. With the stock down 30% over the last three months, the market doesn’t seem to believe that the company has solved all its problems. Given the relatively short history of this stock, we’d remain pretty wary until we see some strong business performance. You could get a better understanding of Anglo African Oil & Gas’s growth by checking out this more detailed historical graph of 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.
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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.