Stock Analysis

King Stone Energy Group's (HKG:663) Stock Price Has Reduced 62% In The Past Three Years

SEHK:663
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Investing in stocks inevitably means buying into some companies that perform poorly. But the last three years have been particularly tough on longer term King Stone Energy Group Limited (HKG:663) shareholders. Unfortunately, they have held through a 62% decline in the share price in that time. And the ride hasn't got any smoother in recent times over the last year, with the price 27% lower in that time. Unhappily, the share price slid 4.1% in the last week.

View our latest analysis for King Stone Energy Group

King Stone Energy Group recorded just HK$13,369,000 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. 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 King Stone Energy Group finds fossil fuels with an exploration program, before it runs out of money.

As a general rule, if a company doesn't have much revenue, and it loses money, then it is a high risk investment. You should be aware that the company needed to issue more shares recently so that it could raise enough money to continue pursuing its business plan. While some such companies go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. King Stone Energy Group has already given some investors a taste of the bitter losses that high risk investing can cause.

Our data indicates that King Stone Energy Group had more in total liabilities than it had cash, when it last reported. That made it extremely high risk, in our view. But since the share price has dived 27% per year, over 3 years , it looks like some investors think it's time to abandon ship, so to speak, even though the cash reserves look a little better with the capital raising. You can see in the image below, how King Stone Energy Group's cash levels have changed over time (click to see the values).

debt-equity-history-analysis
SEHK:663 Debt to Equity History January 13th 2021

In reality it's hard to have much certainty when valuing a business that has neither revenue or profit. Would it bother you if insiders were selling the 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

King Stone Energy Group shareholders are down 27% for the year, but the market itself is up 9.5%. 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 10% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. To that end, you should be aware of the 3 warning signs we've spotted with King Stone Energy Group .

But note: King Stone Energy Group may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on HK exchanges.

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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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
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