It’s not a secret that every investor will make bad investments, from time to time. But it should be a priority to avoid stomach churning catastrophes, wherever possible. We wouldn’t blame Permex Petroleum Corporation (CNSX:OIL) shareholders if they were still in shock after the stock dropped like a lead balloon, down 74% in just one year. A loss like this is a stark reminder that portfolio diversification is important. Permex Petroleum hasn’t been listed for long, so although we’re wary of recent listings that perform poorly, it may still prove itself with time. Shareholders have had an even rougher run lately, with the share price down 29% in the last 90 days.
We don’t think Permex Petroleum’s revenue of CA$1,499,975 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? So it seems shareholders are too busy dreaming about the progress to come than dwelling on the current (lack of) revenue. It seems likely some shareholders believe that Permex Petroleum will discover or develop fossil fuel 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 such companies go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. Permex Petroleum has already given some investors a taste of the bitter losses that high risk investing can cause.
Our data indicates that Permex Petroleum had CA$3,906,218 more in total liabilities than it had cash, when it last reported in March 2019. That puts it in the highest risk category, according to our analysis. But since the share price has dived -74% in the last year, it looks like some investors think it’s time to abandon ship, so to speak. The image below shows how Permex Petroleum’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. What if insiders are ditching the stock hand over fist? It would bother me, that’s for sure. It only takes a moment for you to check whether we have identified any insider sales recently.
A Different Perspective
Given that the market gained 1.2% in the last year, Permex Petroleum shareholders might be miffed that they lost 74%. 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. The share price decline has continued throughout the most recent three months, down 29%, suggesting an absence of enthusiasm from investors. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. Investors who like to make money usually check up on insider purchases, such as the price paid, and total amount bought. You can find out about the insider purchases of Permex Petroleum by clicking this link.
Permex Petroleum is not the only stock that insiders are buying. For those who like to find winning investments 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 CA exchanges.
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.