If you love investing in stocks you’re bound to buy some losers. But the long term shareholders of China Natural Resources, Inc. (NASDAQ:CHNR) have had an unfortunate run in the last three years. Unfortunately, they have held through a 56% decline in the share price in that time. And more recent buyers are having a tough time too, with a drop of 48% in the last year. The falls have accelerated recently, with the share price down 50% in the last three months.
China Natural Resources recorded just CN¥1,403,000 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. It seems likely some shareholders believe that China Natural Resources will find or develop a valuable new mine before too long.
Companies that lack both meaningful revenue and profits are usually considered high risk. There is usually a significant chance that they will need more money for business development, putting them at the mercy of capital markets. So the share price itself impacts the value of the shares (as it determines the cost of capital). 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). It certainly is a dangerous place to invest, as China Natural Resources investors might realise.
China Natural Resources had liabilities exceeding cash by CN¥27m when it last reported in June 2019, according to our data. That puts it in the highest risk category, according to our analysis. But with the share price diving 24% per year, over 3 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 China Natural Resources’s cash levels have changed over time. You can see in the image below, how China Natural Resources’s cash levels have changed over time (click to see the values).
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’d like that just about as much as I like to drink milk and fruit juice mixed together. You can click here to see if there are insiders selling.
A Different Perspective
China Natural Resources shareholders are down 48% for the year, but the market itself is up 6.5%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year’s performance may indicate unresolved challenges, given that it was worse than the annualised loss of 13% 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. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Consider for instance, the ever-present spectre of investment risk. We’ve identified 5 warning signs with China Natural Resources (at least 2 which are potentially serious) , and understanding them should be part of your investment process.
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 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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