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Long term investing works well, but it doesn’t always work for each individual stock. It hits us in the gut when we see fellow investors suffer a loss. For example, we sympathize with anyone who was caught holding Oceanteam ASA (OB:OTS) during the five years that saw its share price drop a whopping 95%. And we doubt long term believers are the only worried holders, since the stock price has declined 59% over the last twelve months. On top of that, the share price has dropped a further 12% in a month.
While a drop like that is definitely a body blow, money isn’t as important as health and happiness.
Oceanteam recorded just US$23,367,000 in revenue over the last twelve months, which isn’t really enough for us to consider it to have a proven product. You have to wonder why venture capitalists aren’t funding it. 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 Oceanteam 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. 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 go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. Some Oceanteam investors have already had a taste of the bitterness stocks like this can leave in the mouth.
Our data indicates that Oceanteam had US$30,617,000 more in total liabilities than it had cash, when it last reported in December 2018. That makes it extremely high risk, in our view. But since the share price has dived -45% per year, over 5 years, it looks like some investors think it’s time to abandon ship, so to speak. You can click on the image below to see (in greater detail) how Oceanteam’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. It costs nothing but a moment of your time to see if we are picking up on any insider selling.
A Different Perspective
While the broader market lost about 1.8% in the twelve months, Oceanteam shareholders did even worse, losing 59%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there’s a good opportunity. Unfortunately, last year’s performance may indicate unresolved challenges, given that it was worse than the annualised loss of 45% 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. You could get a better understanding of Oceanteam’s growth by checking out this more detailed historical graph of earnings, revenue and cash flow.
We will like Oceanteam better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on NO 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.