We’re definitely into long term investing, but some companies are simply bad investments over any time frame. It hits us in the gut when we see fellow investors suffer a loss. For example, we sympathize with anyone who was caught holding Tri-Star Resources plc (LON:TSTR) during the five years that saw its share price drop a whopping 77%. It’s down 1.4% in the last seven days.
With just UK£6,000 worth of revenue in twelve months, we don’t think the market considers Tri-Star Resources to have proven its business plan. You have to wonder why venture capitalists aren’t funding it. So it seems shareholders are too busy dreaming about the progress to come than dwelling on the current (lack of) revenue. It seems likely some shareholders believe that Tri-Star Resources 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. 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. Some Tri-Star Resources investors have already had a taste of the bitterness stocks like this can leave in the mouth.
Tri-Star Resources had liabilities exceeding cash by UK£1.0m when it last reported in December 2018, according to our data. That makes it extremely high risk, in our view. But with the share price diving 26% per year, over 5 years , it’s probably fair to say that some shareholders no longer believe the company will succeed. You can see in the image below, how Tri-Star Resources’s cash levels have changed over time (click to see the values). Look at the image below to see how Tri-Star Resources’s cash levels have changed over time.
Of course, the truth is that it is hard to value companies without much revenue or profit. Would it bother you if insiders were selling the stock? It would bother me, that’s for sure. You can click here to see if there are insiders selling.
A Different Perspective
While the broader market gained around 1.9% in the last year, Tri-Star Resources shareholders lost 8.8%. 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 26% per annum loss investors have suffered over the last half decade. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. You might want to assess this data-rich visualization of its earnings, revenue and cash flow.
If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.
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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If you spot an error that warrants correction, please contact the editor at email@example.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.