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Every investor on earth makes bad calls sometimes. But really bad investments should be rare. So spare a thought for the long term shareholders of Commander Resources Ltd. (CVE:CMD); the share price is down a whopping 77% in the last three years. That'd be enough to cause even the strongest minds some disquiet. The more recent news is of little comfort, with the share price down 53% in a year. Shareholders have had an even rougher run lately, with the share price down 17% in the last 90 days.
With zero revenue generated over twelve months, we don't think that Commander Resources has proved its business plan yet. We can't help wondering why it's publicly listed so early in its journey. Are venture capitalists not interested? 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 Commander Resources finds some valuable resources, 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 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 Commander Resources investors have already had a taste of the bitterness stocks like this can leave in the mouth.
When it last reported its balance sheet in March 2019, Commander Resources had cash in excess of all liabilities of CA$2.3m. That's not too bad but management may have to think about raising capital or taking on debt, unless the company is close to breaking even. We'd venture that shareholders are concerned about the need for more capital, because the share price has dropped 39% per year, over 3 years. The image below shows how Commander Resources's balance sheet has changed over time; if you want to see the precise values, simply click on the image. The image below shows how Commander Resources's balance sheet has changed over time; if you want to see the precise values, simply click on the image.
In reality it's hard to have much certainty when valuing a business that has neither revenue or profit. Would it bother you if insiders were selling the 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
Commander Resources shareholders are down 53% for the year, but the market itself is up 0.4%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 20% 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. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
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 email@example.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.