If You Had Bought Solo Oil (LON:SOLO) Stock Three Years Ago, You'd Be Sitting On A 69% Loss, Today

Solo Oil Plc (LON:SOLO) shareholders should be happy to see the share price up 14% in the last month. But over the last three years we've seen a quite serious decline. Tragically, the share price declined 69% in that time. So it's good to see it climbing back up. After all, could be that the fall was overdone.

View our latest analysis for Solo Oil

Solo Oil recorded just UK£163,000 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. 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 Solo Oil finds fossil fuels with an exploration program, before it runs out of money.

We think companies that have neither significant revenues nor profits are pretty high risk. The 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 companies like this go on to deliver on their plan, making good money for shareholders, many end in painful losses and eventual de-listing. It certainly is a dangerous place to invest, as Solo Oil investors might realise.

Solo Oil had net debt of UK£2,116,000 when it last reported in June 2018, according to our data. That makes it extremely high risk, in our view. But since the share price has dived -32% per year, over 3 years, it looks like some investors think it's time to abandon ship, so to speak. You can see in the image below, how Solo Oil's cash and debt levels have changed over time (click to see the values).

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? I'd like that just about as much as I like to drink milk and fruit juice mixed together. It only takes a moment for you to check whether we have identified any insider sales recently.

A Different Perspective

Investors in Solo Oil had a tough year, with a total loss of 49%, against a market gain of about 7.3%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 13% over the last half decade. We realise that Buffett 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 businesses. It is all well and good that insiders have been buying shares, but we suggest you check here to see what price insiders were buying at.

Solo Oil is not the only stock that insiders are buying. For those who like to find winning investments this freelist of growing companies with recent insider purchasing, could be just the ticket.

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.