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Long term investing is the way to go, but that doesn’t mean you should hold every stock forever. It hits us in the gut when we see fellow investors suffer a loss. Spare a thought for those who held Premier African Minerals Limited (LON:PREM) for five whole years – as the share price tanked 93%. And we doubt long term believers are the only worried holders, since the stock price has declined 52% over the last twelve months. The falls have accelerated recently, with the share price down 30% in the last three months.
We really hope anyone holding through that price crash has a diversified portfolio. Even when you lose money, you don’t have to lose the lesson.
We don’t think Premier African Minerals’s revenue of US$241,000 is enough to establish significant demand. We can’t help wondering why it’s publicly listed so early in its journey. Are venture capitalists not interested? So it seems that the investors focused more on what could be, than paying attention to the current revenues (or lack thereof). It seems likely some shareholders believe that Premier African Minerals will find or develop a valuable new mine before too long.
Companies that lack both meaningful revenue and profits are usually considered 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 such companies do very well over the long term, others become hyped up by promoters before eventually falling back down to earth, and going bankrupt (or being recapitalized). Some Premier African Minerals investors have already had a taste of the bitterness stocks like this can leave in the mouth.
Premier African Minerals had liabilities exceeding cash by US$4,345,000 when it last reported in June 2018, according to our data. That puts it in the highest risk category, according to our analysis. But with the share price diving 42% per year, over 5 years, it’s probably fair to say that some shareholders no longer believe the company will succeed. You can click on the image below to see (in greater detail) how Premier African Minerals’s cash levels have changed over time.
In reality it’s hard to have much certainty when valuing a business that has neither revenue or profit. Given that situation, would you be concerned if it turned out insiders were relentlessly selling stock? It would bother me, that’s for sure. You can click here to see if there are insiders selling.
A Different Perspective
Premier African Minerals shareholders are down 52% for the year, but the market itself is up 0.6%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, last year’s performance may indicate unresolved challenges, given that it was worse than the annualised loss of 42% 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. Shareholders might want to examine this detailed historical graph of past 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.
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.