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Is Alvopetro Energy's (CVE:ALV) Share Price Gain Of 176% Well Earned?

Simply Wall St

Some Alvopetro Energy Ltd. (CVE:ALV) shareholders are probably rather concerned to see the share price fall 38% over the last three months. But that doesn't undermine the rather lovely longer-term return, if you measure over the last three years. In fact, the share price is up a full 176% compared to three years ago. It's not uncommon to see a share price retrace a bit, after a big gain. The thing to consider is whether the underlying business is doing well enough to support the current price.

View our latest analysis for Alvopetro Energy

We don't think Alvopetro Energy's revenue of US$466,000 is enough to establish significant demand. So it seems that the investors focused more on what could be, than paying attention to the current revenues (or lack thereof). For example, they may be hoping that Alvopetro Energy finds fossil fuels with an exploration program, before it runs out of money.

Companies that lack both meaningful revenue and profits are usually considered 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. Of course, if you time it right, high risk investments like this can really pay off, as Alvopetro Energy investors might know.

Our data indicates that Alvopetro Energy had US$1.6m more in total liabilities than it had cash, when it last reported in June 2019. That puts it in the highest risk category, according to our analysis. So the fact that the stock is up 78% per year, over 3 years shows that high risks can lead to high rewards, sometimes. Investors must really like its potential. You can click on the image below to see (in greater detail) how Alvopetro Energy's cash levels have changed over time. You can see in the image below, how Alvopetro Energy's cash levels have changed over time (click to see the values).

TSXV:ALV Historical Debt, October 10th 2019

In reality it's hard to have much certainty when valuing a business that has neither revenue or profit. Given that situation, many of the best investors like to check if insiders have been buying shares. It's often positive if so, assuming the buying is sustained and meaningful. Luckily we are in a position to provide you with this free chart of insider buying (and selling).

A Different Perspective

It's nice to see that Alvopetro Energy shareholders have received a total shareholder return of 29% over the last year. Since the one-year TSR is better than the five-year TSR (the latter coming in at 1.1% per year), it would seem that the stock's performance has improved in recent times. In the best case scenario, this may hint at some real business momentum, implying that now could be a great time to delve deeper. Investors who like to make money usually check up on insider purchases, such as the price paid, and total amount bought. You can find out about the insider purchases of Alvopetro Energy by clicking this link.

There are plenty of other companies that have insiders buying up shares. You probably do 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 CA 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 editorial-team@simplywallst.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.