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Some stocks are best avoided. It hits us in the gut when we see fellow investors suffer a loss. Anyone who held White Rock Minerals Ltd (ASX:WRM) for five years would be nursing their metaphorical wounds since the share price dropped 73% in that time. And it’s not just long term holders hurting, because the stock is down 33% in the last year. Unhappily, the share price slid 14% in the last week.
With zero revenue generated over twelve months, we don’t think that White Rock Minerals has proved its business plan yet. You have to wonder why venture capitalists aren’t funding it. 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, investors may be hoping that White Rock Minerals 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 usually a significant chance that they will need more money for business development, putting them at the mercy of capital markets. So the share price itself impacts the value of the shares (as it determines the cost of capital). While some such companies go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. Some White Rock Minerals investors have already had a taste of the bitterness stocks like this can leave in the mouth.
White Rock Minerals had liabilities exceeding cash by AU$981,100 when it last reported in December 2018, according to our data. That puts it in the highest risk category, according to our analysis. But with the share price diving 23% per year, over 5 years, it’s probably fair to say that some shareholders no longer believe the company will succeed. You can see in the image below, how White Rock Minerals’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. What if insiders are ditching the stock hand over fist? 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
Investors in White Rock Minerals had a tough year, with a total loss of 33%, against a market gain of about 10%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year’s performance caps off a bad run, with the shareholders facing a total loss of 22% per year over five years. 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.
But note: White Rock Minerals may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU 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 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. Thank you for reading.