Long term investing works well, but it doesn't always work for each individual stock. It hits us in the gut when we see fellow investors suffer a loss. Anyone who held Azure Minerals Limited (ASX:AZS) for five years would be nursing their metaphorical wounds since the share price dropped 72% in that time. And we doubt long term believers are the only worried holders, since the stock price has declined 33% over the last twelve months. Unfortunately the share price momentum is still quite negative, with prices down 31% in thirty days.
We don't think Azure Minerals's revenue of AU$85,748 is enough to establish significant demand. We can't help wondering why it's publicly listed so early in its journey. Are venture capitalists not interested? 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 Azure 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. You should be aware that there is always a chance that this sort of company will need to issue more shares to raise money to continue pursuing its business plan. 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). Azure Minerals has already given some investors a taste of the bitter losses that high risk investing can cause.
Our data indicates that Azure Minerals had AU$250k 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 with the share price diving 22% 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 Azure Minerals'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 Azure Minerals's cash levels have changed over time (click to see the values).
Of course, the truth is that it is hard to value companies without much revenue or profit. What if insiders are ditching the stock hand over fist? I would feel more nervous about the company if that were so. It only takes a moment for you to check whether we have identified any insider sales recently.
A Different Perspective
Investors in Azure Minerals had a tough year, with a total loss of 33%, against a market gain of about 7.3%. 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. It's always interesting to track share price performance over the longer term. But to understand Azure Minerals better, we need to consider many other factors. Be aware that Azure Minerals is showing 7 warning signs in our investment analysis , and 4 of those don't sit too well with us...
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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 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.
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