Stock Analysis

    Some Jericho Oil (CVE:JCO) Shareholders Have Taken A Painful 83% Share Price Drop

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    Every investor on earth makes bad calls sometimes. But you have a problem if you face massive losses more than once in a while. So consider, for a moment, the misfortune of Jericho Oil Corporation (CVE:JCO) investors who have held the stock for three years as it declined a whopping 83%. That would certainly shake our confidence in the decision to own the stock. And more recent buyers are having a tough time too, with a drop of 77% in the last year. The falls have accelerated recently, with the share price down 50% in the last three months. But this could be related to the weak market, which is down 31% in the same period.

    While a drop like that is definitely a body blow, money isn't as important as health and happiness.

    See our latest analysis for Jericho Oil

    We don't think Jericho Oil's revenue of CA$266,864 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. For example, they may be hoping that Jericho Oil finds fossil fuels with an exploration program, before it runs out of money.

    Companies that lack both meaningful revenue and profits are usually considered high risk. 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 such companies go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. Jericho Oil has already given some investors a taste of the bitter losses that high risk investing can cause.

    Jericho Oil had cash in excess of all liabilities of CA$1.8m when it last reported (September 2019). While that's nothing to panic about, there is some possibility the company will raise more capital, especially if profits are not imminent. With the share price down 44% per year, over 3 years , it seems likely that the need for cash is weighing on investors' minds. You can see in the image below, how Jericho Oil's cash levels have changed over time (click to see the values).

    TSXV:JCO Historical Debt, March 22nd 2020
    TSXV:JCO Historical Debt, March 22nd 2020

    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. What if insiders are ditching the stock hand over fist? 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

    While the broader market lost about 28% in the twelve months, Jericho Oil shareholders did even worse, losing 77%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 28% 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 Jericho Oil better, we need to consider many other factors. Even so, be aware that Jericho Oil is showing 7 warning signs in our investment analysis , and 4 of those are a bit concerning...

    Of course Jericho Oil 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 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.

    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.