Introducing Strategic Energy Resources (ASX:SER), The Stock That Tanked 85%

We're definitely into long term investing, but some companies are simply bad investments over any time frame. We don't wish catastrophic capital loss on anyone. Imagine if you held Strategic Energy Resources Limited (ASX:SER) for half a decade as the share price tanked 85%. We also note that the stock has performed poorly over the last year, with the share price down 43%. On top of that, the share price is down 20% in the last week.

We really feel for shareholders in this scenario. It's a good reminder of the importance of diversification, and it's worth keeping in mind there's more to life than money, anyway.

Check out our latest analysis for Strategic Energy Resources

With just AU$3,880 worth of revenue in twelve months, we don't think the market considers Strategic Energy Resources to have proven its business plan. 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 Strategic Energy Resources will find or develop a valuable new mine 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 the company needed to issue more shares recently so that it could raise enough 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). Some Strategic Energy Resources investors have already had a taste of the bitterness stocks like this can leave in the mouth.

Strategic Energy Resources only just had cash in excess of all liabilities when it last reported. So it's prudent that the management team has already moved to replenish reserves through the recent capital raising event. The cash situation might not explain why the share price is down 32% per year, over 5 years. You can see in the image below, how Strategic Energy Resources's cash levels have changed over time (click to see the values).

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. Would it bother you if insiders were selling the stock? I would feel more nervous about the company if that were so. It only takes a moment for you to check whether we have identified any insider sales recently.

A Different Perspective

We regret to report that Strategic Energy Resources shareholders are down 43% for the year. Unfortunately, that's worse than the broader market decline of 6.2%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 31% over the last half decade. 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. It's always interesting to track share price performance over the longer term. But to understand Strategic Energy Resources better, we need to consider many other factors. Like risks, for instance. Every company has them, and we've spotted 3 warning signs for Strategic Energy Resources (of which 2 make us uncomfortable!) you should know about.

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 AU 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.