Those Who Purchased Altima Resources (CVE:ARH) Shares Five Years Ago Have A 93% Loss To Show For It
Over the last month the Altima Resources Ltd. (CVE:ARH) has been much stronger than before, rebounding by 40%. But that doesn't change the fact that the returns over the last half decade have been stomach churning. In fact, the share price has tumbled down a mountain to land 93% lower after that period. While the recent increase might be a green shoot, we're certainly hesitant to rejoice. The important question is if the business itself justifies a higher share price in the long term.
We really feel for shareholders in this scenario. It's a good reminder of the importance of diversification, and it's worth keeping in mind there's more to life than money, anyway.
View our latest analysis for Altima Resources
With just CA$95,339 worth of revenue in twelve months, we don't think the market considers Altima Resources 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 Altima Resources will discover or develop fossil fuel before too long.
As a general rule, if a company doesn't have much revenue, and it loses money, then it is a high risk investment. 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. Altima Resources has already given some investors a taste of the bitter losses that high risk investing can cause.
Altima Resources had liabilities exceeding cash by CA$3.3m when it last reported in August 2019, according to our data. That makes it extremely high risk, in our view. But with the share price diving 42% per year, over 5 years , it's probably fair to say that some shareholders no longer believe the company will succeed. The image below shows how Altima Resources's balance sheet has changed over time; if you want to see the precise values, simply click on the image. You can click on the image below to see (in greater detail) how Altima Resources's cash levels have changed over time.
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'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
It's good to see that Altima Resources has rewarded shareholders with a total shareholder return of 17% in the last twelve months. Notably the five-year annualised TSR loss of 42% per year compares very unfavourably with the recent share price performance. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For instance, we've identified 4 warning signs for Altima Resources (2 can't be ignored) that you should be aware of.
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 CA 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.
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