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Did Changing Sentiment Drive Anova Metals's (ASX:AWV) Share Price Down A Painful 90%?

Simply Wall St

It's not possible to invest over long periods without making some bad investments. But really big losses can really drag down an overall portfolio. So take a moment to sympathize with the long term shareholders of Anova Metals Limited (ASX:AWV), who have seen the share price tank a massive 90% over a three year period. That'd be enough to cause even the strongest minds some disquiet. The falls have accelerated recently, with the share price down 15% in the last three months.

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.

Check out our latest analysis for Anova Metals

We don't think Anova Metals's revenue of AU$2,807,581 is enough to establish significant demand. You have to wonder why venture capitalists aren't funding it. 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, investors may be hoping that Anova Metals finds some valuable resources, 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 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. Anova Metals has already given some investors a taste of the bitter losses that high risk investing can cause.

Anova Metals had liabilities exceeding cash by AU$4.2m when it last reported in June 2019, according to our data. That puts it in the highest risk category, according to our analysis. But since the share price has dived -54% per year, over 3 years , it looks like some investors think it's time to abandon ship, so to speak. The image below shows how Anova Metals'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 Anova Metals's balance sheet has changed over time; if you want to see the precise values, simply click on the image.

ASX:AWV Historical Debt, December 17th 2019

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? I would feel more nervous about the company if that were so. It costs nothing but a moment of your time to see if we are picking up on any insider selling.

A Different Perspective

Anova Metals provided a TSR of 22% over the last twelve months. But that was short of the market average. On the bright side, that's still a gain, and it is certainly better than the yearly loss of about 17% endured over half a decade. So this might be a sign the business has turned its fortunes around. Before spending more time on Anova Metals it might be wise to click here to see if insiders have been buying or selling shares.

Of course Anova Metals may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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.