We're definitely into long term investing, but some companies are simply bad investments over any time frame. We really hate to see fellow investors lose their hard-earned money. Anyone who held Orminex Limited (ASX:ONX) for five years would be nursing their metaphorical wounds since the share price dropped 99% in that time. And we doubt long term believers are the only worried holders, since the stock price has declined 78% over the last twelve months. Unfortunately the share price momentum is still quite negative, with prices down 54% in thirty days. We do note, however, that the broader market is down 23% in that period, and this may have weighed on the share price.
While a drop like that is definitely a body blow, money isn't as important as health and happiness.
See our latest analysis for Orminex
We don't think Orminex's revenue of AU$542,934 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? 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. For example, investors may be hoping that Orminex finds some valuable resources, before it runs out of money.
As a general rule, if a company doesn't have much revenue, and it loses money, then it is a high risk investment. 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 companies like this go on to deliver on their plan, making good money for shareholders, many end in painful losses and eventual de-listing. Orminex has already given some investors a taste of the bitter losses that high risk investing can cause.
When it reported in December 2019 Orminex had minimal cash in excess of all liabilities consider its expenditure: just AU$796k 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 58% per year, over 5 years . You can see in the image below, how Orminex's cash levels have changed over time (click to see the values). You can click on the image below to see (in greater detail) how Orminex's cash levels have changed over time.
It can be extremely risky to invest in a company that doesn't even have revenue. There's no way to know its value easily. Would it bother you if insiders were selling the stock? 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.
A Different Perspective
We regret to report that Orminex shareholders are down 78% for the year. Unfortunately, that's worse than the broader market decline of 7.8%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 58% over the last half decade. We realise that Baron Rothschild 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 business. It's always interesting to track share price performance over the longer term. But to understand Orminex better, we need to consider many other factors. For instance, we've identified 5 warning signs for Orminex (1 is significant) that you should be aware of.
We will like Orminex better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
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 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.
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. Thank you for reading.