Long term investing is the way to go, but that doesn’t mean you should hold every stock forever. It hits us in the gut when we see fellow investors suffer a loss. Imagine if you held Mammoth Resources Corp. (CVE:MTH) for half a decade as the share price tanked 88%. We also note that the stock has performed poorly over the last year, with the share price down 54%. Even worse, it’s down 33% in about a month, which isn’t fun at all.
We really hope anyone holding through that price crash has a diversified portfolio. Even when you lose money, you don’t have to lose the lesson.
View our latest analysis for Mammoth Resources
Mammoth Resources hasn’t yet reported any revenue yet, so it’s as much a business idea as an actual business. You have to wonder why venture capitalists aren’t funding it. So it seems shareholders are too busy dreaming about the progress to come than dwelling on the current (lack of) revenue. For example, investors may be hoping that Mammoth Resources finds some valuable resources, before it runs out of money.
We think companies that have neither significant revenues nor profits are pretty 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 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 Mammoth Resources investors have already had a taste of the bitterness stocks like this can leave in the mouth.
Our data indicates that Mammoth Resources had net debt of CA$755,585 when it last reported in October 2018. That makes it extremely high risk, in our view. But with the share price diving 34% per year, over 5 years, it’s probably fair to say that some shareholders no longer believe the company will succeed. The image below shows how Mammoth Resources’s balance sheet has changed over time; if you want to see the precise values, simply click on the image.
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 only takes a moment for you to check whether we have identified any insider sales recently.
A Different Perspective
While the broader market gained around 7.6% in the last year, Mammoth Resources shareholders lost 54%. 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 34% 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. Before spending more time on Mammoth Resources it might be wise to click here to see if insiders have been buying or selling shares.
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 CA exchanges.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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. Thank you for reading.