Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. When you buy individual stocks, you can make higher profits, but you also face the risk of under-performance. Investors in Almadex Minerals Ltd. (CVE:DEX) have tasted that bitter downside in the last year, as the share price dropped 30%. That's well bellow the market return of -0.8%. Almadex Minerals may have better days ahead, of course; we've only looked at a one year period. More recently, the share price has dropped a further 20% in a month.
Almadex Minerals recorded just CA$328,119 in revenue over the last twelve months, which isn't really enough for us to consider it to have a proven product. 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 Almadex Minerals 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. 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.
Almadex Minerals has plenty of cash in the bank, with cash in excess of all liabilities sitting at CA$6.2m, when it last reported (September 2019). That allows management to focus on growing the business, and not worry too much about raising capital. But with the share price diving 30% in the last year , it could be that the price was previously too hyped up. You can see in the image below, how Almadex Minerals'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 Almadex Minerals's cash levels have changed over time.
Of course, the truth is that it is hard to value companies without much revenue or profit. Given that situation, would you be concerned if it turned out insiders were relentlessly selling stock? I would feel more nervous about the company if that were so. You can click here to see if there are insiders selling.
A Different Perspective
Almadex Minerals shareholders are down 30% for the year, even worse than the market loss of 0.8%. There's no doubt that's a disappointment, but the stock may well have fared better in a stronger market. The share price decline has continued throughout the most recent three months, down 15%, suggesting an absence of enthusiasm from investors. Given the relatively short history of this stock, we'd remain pretty wary until we see some strong business performance. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Consider for instance, the ever-present spectre of investment risk. We've identified 5 warning signs with Almadex Minerals (at least 3 which can't be ignored) , and understanding them should be part of your investment process.
But note: Almadex Minerals 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.
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.
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