Further weakness as Koonenberry Gold (ASX:KNB) drops 12% this week, taking one-year losses to 40%

Investors can approximate the average market return by buying an index fund. While individual stocks can be big winners, plenty more fail to generate satisfactory returns. Investors in Koonenberry Gold Limited (ASX:KNB) have tasted that bitter downside in the last year, as the share price dropped 55%. That falls noticeably short of the market return of around 13%. Because Koonenberry Gold hasn't been listed for many years, the market is still learning about how the business performs. More recently, the share price has dropped a further 25% in a month.

Since Koonenberry Gold has shed AU$576k from its value in the past 7 days, let's see if the longer term decline has been driven by the business' economics.

View our latest analysis for Koonenberry Gold

With just AU$69,974 worth of revenue in twelve months, we don't think the market considers Koonenberry Gold to have proven its business plan. We can't help wondering why it's publicly listed so early in its journey. Are venture capitalists not interested? As a result, we think it's unlikely shareholders are paying much attention to current revenue, but rather speculating on growth in the years to come. It seems likely some shareholders believe that Koonenberry Gold will find or develop a valuable new mine before too long.

Companies that lack both meaningful revenue and profits are usually considered high risk. We can see that they needed to raise more capital, and took that step recently despite the fact that it would have been dilutive to current holders. 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). Koonenberry Gold has already given some investors a taste of the bitter losses that high risk investing can cause.

When it last reported, Koonenberry Gold had minimal cash in excess of all liabilities. So it is a good thing that the company has looked to remedy the situation by raising more capital recently. The cash situation might not explain why the share price is down 55% in the last year. The image below shows how Koonenberry Gold'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.

What About The Total Shareholder Return (TSR)?

We've already covered Koonenberry Gold's share price action, but we should also mention its total shareholder return (TSR). The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. Koonenberry Gold hasn't been paying dividends, but its TSR of -40% exceeds its share price return of -55%, implying it has either spun-off a business, or raised capital at a discount; thereby providing additional value to shareholders.

A Different Perspective

While Koonenberry Gold shareholders are down 40% for the year, the market itself is up 13%. While the aim is to do better than that, it's worth recalling that even great long-term investments sometimes underperform for a year or more. With the stock down 21% over the last three months, the market doesn't seem to believe that the company has solved all its problems. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. It's always interesting to track share price performance over the longer term. But to understand Koonenberry Gold better, we need to consider many other factors. To that end, you should be aware of the 5 warning signs we've spotted with Koonenberry Gold .

Koonenberry Gold is not the only stock that insiders are buying. For those who like to find lesser know companies 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 Australian exchanges.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com