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Investors can approximate the average market return by buying an index fund. But if you buy individual stocks, you can do both better or worse than that. That downside risk was realized by AbraPlata Resource Corp. (CVE:ABRA) shareholders over the last year, as the share price declined 32%. That contrasts poorly with the market return of 0.6%. Because AbraPlata Resource hasn’t been listed for many years, the market is still learning about how the business performs. The silver lining is that the stock is up 63% in about a week.
AbraPlata Resource didn’t have any revenue in the last year, so it’s fair to say it doesn’t yet have a proven product (or at least not one people are paying for). 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 AbraPlata Resource will find or develop a valuable new mine 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.
Our data indicates that AbraPlata Resource had CA$881,621 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 with the share price diving 32% in the last year, it’s probably fair to say that some shareholders no longer believe the company will succeed. You can see in the image below, how AbraPlata Resource’s cash levels have changed over time (click to see the values).
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? 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
While AbraPlata Resource shareholders are down 32% for the year, the market itself is up 0.6%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. It’s great to see a nice little 8.3% rebound in the last three months. This could just be a bounce because the selling was too aggressive, but fingers crossed it’s the start of a new trend. Before spending more time on AbraPlata Resource it might be wise to click here to see if insiders have been buying or selling shares.
But note: AbraPlata Resource may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA 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 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.