It is a pleasure to report that the Anglo African Oil & Gas plc (LON:AAOG) is up 42% in the last quarter. But that is minimal compensation for the share price under-performance over the last year. In fact, the price has declined 15% in a year, falling short of the returns you could get by investing in an index fund.
Anglo African Oil & Gas recorded just UK£267,474 in revenue over the last twelve months, which isn’t really enough for us to consider it to have a proven product. 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. For example, they may be hoping that Anglo African Oil & Gas finds oil or gas with an exploration program, before it runs out of money.
We think companies that have neither significant revenues nor profits are pretty high risk. There is almost always a chance they will need to raise more capital, and their progress – and share price – will dictate how dilutive that is to current holders. 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.
Anglo African Oil & Gas had net cash of just UK£2.0m when it last reported (June 2018). So if it has not already moved to replenish reserves, we think the near-term chances of a capital raising event are pretty high. That probably explains why the share price is down 15% in the last year. You can see in the image below, how Anglo African Oil & Gas’s cash and debt 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. Given that situation, would you be concerned if it turned out insiders were relentlessly selling stock? 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
Given that the market gained 1.0% in the last year, Anglo African Oil & Gas shareholders might be miffed that they lost 15%. While the aim is to do better than that, it’s worth recalling that even great long-term investments sometimes underperform for a year or more. Putting aside the last twelve months, it’s good to see the share price has rebounded by 42%, in the last ninety days. This could just be a bounce because the selling was too aggressive, but fingers crossed its just the start. You could get a better understanding of Anglo African Oil & Gas’s growth by checking out this more detailed historical graph of earnings, revenue and cash flow.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on GB exchanges.
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