Some Greenpower Energy (ASX:GPP) Shareholders Have Taken A Painful 94% Share Price Drop

Some stocks are best avoided. It hits us in the gut when we see fellow investors suffer a loss. Imagine if you held Greenpower Energy Limited (ASX:GPP) for half a decade as the share price tanked 94%. And some of the more recent buyers are probably worried, too, with the stock falling 88% in the last year. Shareholders have had an even rougher run lately, with the share price down 43% in the last 90 days. We note that the company has reported results fairly recently; and the market is hardly delighted. You can check out the latest numbers in our company report.

While a drop like that is definitely a body blow, money isn't as important as health and happiness.

View our latest analysis for Greenpower Energy

We don't think Greenpower Energy's revenue of AU$4,198 is enough to establish significant demand. You have to wonder why venture capitalists aren't funding it. So it seems that the investors more focused on would could be, than paying attention to the current revenues (or lack thereof). It seems likely some shareholders believe that Greenpower Energy will discover or develop new oil or gas reserves 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 such companies go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. Greenpower Energy has already given some investors a taste of the bitter losses that high risk investing can cause.

When it reported in December 2018 Greenpower Energy had minimal net cash consider its expenditure: just AU$636k to be specific. So if it has not already moved to replenish reserves, we think the near-term chances of a capital raising event are pretty high. With that in mind, you can understand why the share price dropped 44% per year, over 5 years. The image belows shows how Greenpower Energy's balance sheet has changed over time; if you want to see the precise values, simply click on the image.

Of course, the truth is that it is hard to value companies without much revenue or profit. Given that situation, would you be concerned if it turned out insiders were relentlessly selling stock? I would feel more nervous about the company if that were so. It costs nothing but a moment of your time to see if we are picking up on any insider selling.

What about the Total Shareholder Return (TSR)?

We'd be remiss not to mention the difference between Greenpower Energy's total shareholder return (TSR) and its share price return. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings. Greenpower Energy hasn't been paying dividends, but its TSR of -92% exceeds its share price return of -94%, implying it has raised capital at a discount, which is deemed to provide value to shareholders.

A Different Perspective

Investors in Greenpower Energy had a tough year, with a total loss of 88%, against a market gain of about 8.0%. 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 39% 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. Before spending more time on Greenpower Energy it might be wise to click here to see if insiders have been buying or selling shares.

For those who like to find winning investments this freelist of growing companies with recent insider purchasing, could be just the ticket.

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 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. Thank you for reading.