Did Changing Sentiment Drive Nelson Resources's (ASX:NES) Share Price Down A Worrying 53%?

Taking the occasional loss comes part and parcel with investing on the stock market. Unfortunately, shareholders of Nelson Resources Limited (ASX:NES) have suffered share price declines over the last year. The share price is down a hefty 53% in that time. Nelson Resources may have better days ahead, of course; we've only looked at a one year period. The falls have accelerated recently, with the share price down 46% in the last three months.

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See our latest analysis for Nelson Resources

Nelson Resources recorded just AU$29,421 in revenue over the last twelve months, which isn't really enough for us to consider it to have a proven product. 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 Nelson Resources will find or develop a valuable new mine before too long.

Companies that lack both meaningful revenue and profits are usually considered high risk. 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 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). It certainly is a dangerous place to invest, as Nelson Resources investors might realise.

When it reported in December 2018 Nelson Resources had minimal net cash consider its expenditure: just AU$1.6m 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. That probably explains why the share price is down 53% in the last year. The image below shows how Nelson Resources'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? 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.

A Different Perspective

Given that the market gained 6.7% in the last year, Nelson Resources shareholders might be miffed that they lost 53%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. With the stock down 46% over the last three months, the market doesn't seem to believe that the company has solved all its problems. Given the relatively short history of this stock, we'd remain pretty wary until we see some strong business performance. Before spending more time on Nelson Resources it might be wise to click here to see if insiders have been buying or selling shares.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

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.