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Did Calidus Resources' (ASX:CAI) Share Price Deserve to Gain 15%?

Simply Wall St
·3 mins read

The simplest way to invest in stocks is to buy exchange traded funds. But if you pick the right individual stocks, you could make more than that. To wit, the Calidus Resources Limited (ASX:CAI) share price is 15% higher than it was a year ago, much better than the market decline of around 14% (not including dividends) in the same period. So that should have shareholders smiling. We'll need to follow Calidus Resources for a while to get a better sense of its share price trend, since it hasn't been listed for particularly long.

View our latest analysis for Calidus Resources

Calidus Resources recorded just AU$338,688 in revenue over the last twelve months, which isn't really enough for us to consider it to have a proven product. So it seems shareholders are too busy dreaming about the progress to come than dwelling on the current (lack of) revenue. For example, investors may be hoping that Calidus Resources 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 almost always a chance they will need to raise more capital, and their progress - and share price - will dictate how dilutive that is to current holders. 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).

When it reported in December 2019 Calidus Resources had minimal cash in excess of all liabilities consider its expenditure: just AU$8.1m to be specific. So if it hasn't remedied the situation already, it will almost certainly have to raise more capital soon. Given how low on cash it got, investors must really like its potential for the share price to be up 153% in the last year. The image below shows how Calidus Resources's balance sheet has changed over time; if you want to see the precise values, simply click on the image.

ASX:CAI Historical Debt May 1st 2020
ASX:CAI Historical Debt May 1st 2020

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 usually a positive if they have, as it may indicate they see value in the stock. You can click here to see if there are insiders buying.

A Different Perspective

Calidus Resources boasts a total shareholder return of 15% for the last year. A substantial portion of that gain has come in the last three months, with the stock up 15% in that time. Demand for the stock from multiple parties is pushing the price higher; it could be that word is getting out about its virtues as a business. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Like risks, for instance. Every company has them, and we've spotted 5 warning signs for Calidus Resources (of which 1 is a bit concerning!) you should know about.

For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU exchanges.

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.

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. Thank you for reading.