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Did Changing Sentiment Drive Anglo African Oil & Gas's (LON:AAOG) Share Price Down A Disastrous 98%?

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Simply Wall St
·4 min read
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As every investor would know, you don't hit a homerun every time you swing. But it's not unreasonable to try to avoid truly shocking capital losses. We wouldn't blame Anglo African Oil & Gas plc (LON:AAOG) shareholders if they were still in shock after the stock dropped like a lead balloon, down 98% in just one year. While some investors are willing to stomach this sort of loss, they are usually professionals who spread their bets thinly. Anglo African Oil & Gas hasn't been listed for long, so although we're wary of recent listings that perform poorly, it may still prove itself with time. Furthermore, it's down 92% in about a quarter. That's not much fun for holders.

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.

View our latest analysis for Anglo African Oil & Gas

Anglo African Oil & Gas recorded just UK£200,649 in revenue over the last twelve months, which isn't really enough for us to consider it to have a proven product. We can't help wondering why it's publicly listed so early in its journey. Are venture capitalists not interested? 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. For example, they may be hoping that Anglo African Oil & Gas finds fossil fuels with an exploration program, before it runs out of money.

As a general rule, if a company doesn't have much revenue, and it loses money, then it is a high risk investment. 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 go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. Some Anglo African Oil & Gas investors have already had a taste of the bitterness stocks like this can leave in the mouth.

Our data indicates that Anglo African Oil & Gas had UK£7.3m 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. But with the share price diving 98% in the last year , it's probably fair to say that some shareholders no longer believe the company will succeed. The image below shows how Anglo African Oil & Gas's balance sheet has changed over time; if you want to see the precise values, simply click on the image. You can click on the image below to see (in greater detail) how Anglo African Oil & Gas's cash levels have changed over time.

AIM:AAOG Historical Debt, March 1st 2020
AIM:AAOG Historical Debt, March 1st 2020

It can be extremely risky to invest in a company that doesn't even have revenue. There's no way to know its value easily. Would it bother you if insiders were selling the stock? It would bother me, that's for sure. It costs nothing but a moment of your time to see if we are picking up on any insider selling.

A Different Perspective

Given that the market gained 0.2% in the last year, Anglo African Oil & Gas shareholders might be miffed that they lost 98%. While the aim is to do better than that, it's worth recalling that even great long-term investments sometimes underperform for a year or more. With the stock down 92% over the last three months, the market doesn't seem to believe that the company has solved all its problems. Given the relatively short history of this stock, we'd remain pretty wary until we see some strong business performance. 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. Take risks, for example - Anglo African Oil & Gas has 7 warning signs (and 5 which can't be ignored) we think you should know about.

If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.

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