For many investors, the main point of stock picking is to generate higher returns than the overall market. But in any portfolio, there are likely to be some stocks that fall short of that benchmark. Unfortunately, that’s been the case for longer term Ansar Financial and Development Corporation (CSE:AFD) shareholders, since the share price is down 29% in the last three years, falling well short of the market return of around 17%. The silver lining is that the stock is up 3.4% in about a week.
With just CA$135,189 worth of revenue in twelve months, we don’t think the market considers Ansar Financial and Development to have proven its business plan. 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. It seems likely some shareholders believe that Ansar Financial and Development will significantly advance the business plan 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. 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.
Ansar Financial and Development has plenty of cash in the bank, with cash in excess of all liabilities sitting at CA$1.1m, when it last reported (September 2019). That allows management to focus on growing the business, and not worry too much about raising capital. But since the share price has dropped 11% per year, over 3 years , it seems like the market might have been over-excited previously. The image below shows how Ansar Financial and Development’s balance sheet has changed over time; if you want to see the precise values, simply click on the image. The image below shows how Ansar Financial and Development’s balance sheet has changed over time; if you want to see the precise values, simply click on the image.
In reality it’s hard to have much certainty when valuing a business that has neither revenue or profit. What if insiders are ditching the stock hand over fist? 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
The last twelve months weren’t great for Ansar Financial and Development shares, which cost holders 3.2%, while the market was up about 5.7%. Of course the long term matters more than the short term, and even great stocks will sometimes have a poor year. Unfortunately, the longer term story isn’t pretty, with investment losses running at 11% per year over three years. We’d need clear signs of growth in the underlying business before we could muster much enthusiasm for this one. 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. Like risks, for instance. Every company has them, and we’ve spotted 4 warning signs for Ansar Financial and Development (of which 3 make us uncomfortable!) you should know about.
For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA 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.
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. Thank you for reading.