Volatility 101: Should Ansar Financial and Development (CNSX:AFD) Shares Have Dropped 28%?

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While not a mind-blowing move, it is good to see that the Ansar Financial and Development Corporation (CNSX:AFD) share price has gained 14% in the last three months. But that doesn’t help the fact that the three year return is less impressive. In fact, the share price is down 28% in the last three years, falling well short of the market return.

See our latest analysis for Ansar Financial and Development

With just CA$110,571 worth of revenue in twelve months, we don’t think the market considers Ansar Financial and Development to have proven its business plan. This state of affairs suggests that venture capitalists won’t provide funds on attractive terms. So it seems shareholders are too busy dreaming about the progress to come than dwelling on the current (lack of) revenue. Investors will be hoping that Ansar Financial and Development can make progress and gain better traction for the business, before it runs low on cash.

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.

Ansar Financial and Development has plenty of cash in the bank, with cash in excess of all liabilities sitting at CA$1.1m, when it last reported (December 2018). That allows management to focus on growing the business, and not worry too much about raising capital. But with the share price diving 10% per year, over 3 years, it could be that the price was previously too hyped up. The image below shows how Ansar Financial and Development’s balance sheet has changed over time; if you want to see the precise values, simply click on the image.

CNSX:AFD Historical Debt, July 19th 2019
CNSX:AFD Historical Debt, July 19th 2019

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? 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

The last twelve months weren’t great for Ansar Financial and Development shares, which cost holders 1.5%, including dividends, while the market was up about 0.7%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. However, the loss over the last year isn’t as bad as the 10% per annum loss investors have suffered over the last three years. We’d need clear signs of growth in the underlying business before we could muster much enthusiasm for this one. Keeping this in mind, a solid next step might be to take a look at Ansar Financial and Development’s dividend track record. This free interactive graph is a great place to start.

Of course Ansar Financial and Development 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.

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 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. Thank you for reading.