We’re definitely into long term investing, but some companies are simply bad investments over any time frame. We really hate to see fellow investors lose their hard-earned money. Anyone who held Egdon Resources plc (LON:EDR) for five years would be nursing their metaphorical wounds since the share price dropped 75% in that time. We also note that the stock has performed poorly over the last year, with the share price down 56%. Shareholders have had an even rougher run lately, with the share price down 37% in the last 90 days. This could be related to the recent financial results – you can catch up on the most recent data by reading our company report.
With just UK£2,196,526 worth of revenue in twelve months, we don’t think the market considers Egdon 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. For example, they may be hoping that Egdon Resources finds fossil fuels with an exploration program, before it runs out of money.
Companies that lack both meaningful revenue and profits are usually considered high risk. 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. Egdon Resources has already given some investors a taste of the bitter losses that high risk investing can cause.
Our data indicates that Egdon Resources had UK£2.2m more in total liabilities than it had cash, when it last reported in July 2019. That makes it extremely high risk, in our view. But with the share price diving 24% per year, over 5 years , it’s probably fair to say that some shareholders no longer believe the company will succeed. You can click on the image below to see (in greater detail) how Egdon Resources’s cash levels have changed over time. You can click on the image below to see (in greater detail) how Egdon 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. For example, we’ve discovered 6 warning signs for Egdon Resources (of which 1 is major) which any shareholder or potential investor should be aware of.
A Different Perspective
While the broader market gained around 20% in the last year, Egdon Resources shareholders lost 56%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, last year’s performance may indicate unresolved challenges, given that it was worse than the annualised loss of 24% 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. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.
Of course Egdon Resources may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
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 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.
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