If you are building a properly diversified stock portfolio, the chances are some of your picks will perform badly. But the last three years have been particularly tough on longer term Torchlight Energy Resources, Inc. (NASDAQ:TRCH) shareholders. So they might be feeling emotional about the 61% share price collapse, in that time. And the ride hasn’t got any smoother in recent times over the last year, with the price 38% lower in that time. Unfortunately the share price momentum is still quite negative, with prices down 37% in thirty days.
Torchlight Energy Resources recorded just US$1,008,315 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 Torchlight Energy Resources 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 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 Torchlight Energy Resources investors have already had a taste of the bitterness stocks like this can leave in the mouth.
Our data indicates that Torchlight Energy Resources had US$23m more in total liabilities than it had cash, when it last reported in September 2019. That makes it extremely high risk, in our view. But with the share price diving 27% per year, over 3 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 Torchlight Energy Resources’s cash levels have changed over time (click to see the values). The image below shows how Torchlight Energy Resources’s balance sheet has changed over time; if you want to see the precise values, simply click on the image.
Of course, the truth is that it is hard to value companies without much revenue or profit. Given that situation, would you be concerned if it turned out insiders were relentlessly selling stock? I would feel more nervous about the company if that were so. It costs nothing but a moment of your time to see if we are picking up on any insider selling.
A Different Perspective
Torchlight Energy Resources shareholders are down 38% for the year, but the market itself is up 23%. 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. Longer term investors wouldn’t be so upset, since they would have made 3.7%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. It’s always interesting to track share price performance over the longer term. But to understand Torchlight Energy Resources better, we need to consider many other factors. Be aware that Torchlight Energy Resources is showing 5 warning signs in our investment analysis , and 1 of those is potentially serious…
We will like Torchlight Energy Resources 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 US exchanges.
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.
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