We're definitely into long term investing, but some companies are simply bad investments over any time frame. It hits us in the gut when we see fellow investors suffer a loss. Anyone who held Argentina Lithium & Energy Corp. (CVE:LIT) for five years would be nursing their metaphorical wounds since the share price dropped 94% in that time. And we doubt long term believers are the only worried holders, since the stock price has declined 91% over the last twelve months. Shareholders have had an even rougher run lately, with the share price down 65% in the last 90 days. This could be related to the recent financial results - you can catch up on the most recent data by reading our company report.
We really feel for shareholders in this scenario. It's a good reminder of the importance of diversification, and it's worth keeping in mind there's more to life than money, anyway.
Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!
Argentina Lithium & Energy didn't have any revenue in the last year, so it's fair to say it doesn't yet have a proven product (or at least not one people are paying for). You have to wonder why venture capitalists aren't funding it. So it seems that the investors focused more on what could be, than paying attention to the current revenues (or lack thereof). For example, investors may be hoping that Argentina Lithium & Energy finds some valuable resources, before it runs out of money.
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 companies like this go on to deliver on their plan, making good money for shareholders, many end in painful losses and eventual de-listing. Argentina Lithium & Energy has already given some investors a taste of the bitter losses that high risk investing can cause.
Argentina Lithium & Energy had liabilities exceeding cash by CA$593,103 when it last reported in March 2019, according to our data. That puts it in the highest risk category, according to our analysis. But with the share price diving 44% per year, over 5 years, it's probably fair to say that some shareholders no longer believe the company will succeed. The image below shows how Argentina Lithium & Energy'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. You can click here to see if there are insiders selling.
A Different Perspective
Argentina Lithium & Energy shareholders are down 91% for the year, but the market itself is up 1.5%. 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 44% per year over five years. 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. If you would like to research Argentina Lithium & Energy in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
We will like Argentina Lithium & Energy 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 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 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.