Did You Manage To Avoid Mount Burgess Mining's (ASX:MTB) Painful 56% Share Price Drop?

The nature of investing is that you win some, and you lose some. And there's no doubt that Mount Burgess Mining N.L. (ASX:MTB) stock has had a really bad year. The share price has slid 56% in that time. Notably, shareholders had a tough run over the longer term, too, with a drop of 50% in the last three years. The good news is that the stock is up 33% in the last week.

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See our latest analysis for Mount Burgess Mining

With just AU$20,109 worth of revenue in twelve months, we don't think the market considers Mount Burgess Mining to have proven its business plan. This state of affairs suggests that venture capitalists won't provide funds on attractive terms. 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 Mount Burgess Mining will find or develop a valuable new mine before too long.

We think companies that have neither significant revenues nor profits are pretty 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. Mount Burgess Mining has already given some investors a taste of the bitter losses that high risk investing can cause.

Our data indicates that Mount Burgess Mining had AU$3,505,983 more in total liabilities than it had cash, when it last reported in December 2018. That makes it extremely high risk, in our view. But with the share price diving 56% in the last year, it's probably fair to say that some shareholders no longer believe the company will succeed. The image below shows how Mount Burgess Mining'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. Would it bother you if insiders were selling the stock? I'd like that just about as much as I like to drink milk and fruit juice mixed together. It costs nothing but a moment of your time to see if we are picking up on any insider selling.

A Different Perspective

Investors in Mount Burgess Mining had a tough year, with a total loss of 56%, against a market gain of about 11%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 11% over the last half decade. We realise that Buffett has said investors should 'buy when there is blood on the streets', but we caution that investors should first be sure they are buying a high quality businesses. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.

Of course Mount Burgess Mining may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU exchanges.

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.