Introducing Resource Generation (ASX:RES), The Stock That Dropped 19% In The Last Five Years

Ideally, your overall portfolio should beat the market average. But the main game is to find enough winners to more than offset the losers At this point some shareholders may be questioning their investment in Resource Generation Limited (ASX:RES), since the last five years saw the share price fall 19%. Shareholders have had an even rougher run lately, with the share price down 18% in the last 90 days.

Check out our latest analysis for Resource Generation

With just AU$80,000 worth of revenue in twelve months, we don't think the market considers Resource Generation to have proven its business plan. You have to wonder why venture capitalists aren't funding it. So it seems that the investors focused more on what could be, than paying attention to the current revenues (or lack thereof). It seems likely some shareholders believe that Resource Generation will discover or develop fossil fuel before too long.

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 such companies go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt.

Our data indicates that Resource Generation had AU$94m more in total liabilities than it had cash, when it last reported in June 2019. That makes it extremely high risk, in our view. But since the share price has dived -4.1% per year, over 5 years , it looks like some investors think it's time to abandon ship, so to speak. The image below shows how Resource Generation's balance sheet has changed over time; if you want to see the precise values, simply click on the image. You can see in the image below, how Resource Generation'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? I would feel more nervous about the company if that were so. You can click here to see if there are insiders selling.

A Different Perspective

Resource Generation shareholders gained a total return of 1.5% during the year. But that return falls short of the market. On the bright side, that's still a gain, and it is certainly better than the yearly loss of about 4.1% endured over half a decade. It could well be that the business is stabilizing. It's always interesting to track share price performance over the longer term. But to understand Resource Generation better, we need to consider many other factors. Even so, be aware that Resource Generation is showing 6 warning signs in our investment analysis , and 3 of those make us uncomfortable...

We will like Resource Generation better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.

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.