Generally speaking long term investing is the way to go. But along the way some stocks are going to perform badly. For example, after five long years the Reabold Resources Plc (LON:RBD) share price is a whole 68% lower. We certainly feel for shareholders who bought near the top. Furthermore, it’s down 18% in about a quarter. That’s not much fun for holders.
With just UK£584,000 worth of revenue in twelve months, we don’t think the market considers Reabold Resources to have proven its business plan. 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. For example, they may be hoping that Reabold Resources finds fossil fuels with an exploration program, before it runs out of money.
We think companies that have neither significant revenues nor profits are pretty high risk. 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). Some Reabold Resources investors have already had a taste of the bitterness stocks like this can leave in the mouth.
Reabold Resources had cash in excess of all liabilities of just UK£1.6m when it last reported (June 2019). So if it hasn’t remedied the situation already, it will almost certainly have to raise more capital soon. With that in mind, you can understand why the share price dropped 20% per year, over 5 years . You can click on the image below to see (in greater detail) how Reabold Resources’s cash levels have changed over time. You can click on the image below to see (in greater detail) how Reabold Resources’s cash levels have changed over time.
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? It would bother me, that’s for sure. It costs nothing but a moment of your time to see if we are picking up on any insider selling.
A Different Perspective
Reabold Resources shareholders are up 8.6% for the year. But that was short of the market average. But at least that’s still a gain! Over five years the TSR has been a reduction of 20% per year, over five years. So this might be a sign the business has turned its fortunes around. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Be aware that Reabold Resources is showing 5 warning signs in our investment analysis , and 3 of those make us uncomfortable…
There are plenty of other companies that have insiders buying up shares. You probably do 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 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. Simply Wall St has no position in the stocks mentioned.
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