Update: ADX Energy (ASX:ADX) Stock Gained 29% In The Last Three Years

It hasn't been the best quarter for ADX Energy Ltd (ASX:ADX) shareholders, since the share price has fallen 25% in that time. In contrast the stock is up over the last three years. However, it's unlikely many shareholders are elated with the share price gain of 29% over that time, given the rising market.

See our latest analysis for ADX Energy

We don't think ADX Energy's revenue of AU$10,755 is enough to establish significant demand. So it seems that the investors focused more on what could be, than paying attention to the current revenues (or lack thereof). For example, they may be hoping that ADX Energy 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 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 companies like this go on to deliver on their plan, making good money for shareholders, many end in painful losses and eventual de-listing.

ADX Energy had cash in excess of all liabilities of just AU$1.6m when it last reported (June 2019). So if it has not already moved to replenish reserves, we think the near-term chances of a capital raising event are pretty high. It's a testament to the popularity of the business plan that the share price gained 141% per year, over 3 years , despite the weak balance sheet. You can click on the image below to see (in greater detail) how ADX Energy's cash levels have changed over time. The image below shows how ADX Energy's balance sheet has 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. One thing you can do is check if company insiders are buying shares. If they are buying a significant amount of shares, that's certainly a good thing. Luckily we are in a position to provide you with this free chart of insider buying (and selling).

A Different Perspective

While the broader market gained around 22% in the last year, ADX Energy shareholders lost 10.0%. 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. Longer term investors wouldn't be so upset, since they would have made 2.4%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. If you would like to research ADX Energy in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.

But note: ADX Energy 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.

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.

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.