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Did Changing Sentiment Drive Athena Resource's (ASX:AHN) Share Price Down A Worrying 65%?

Simply Wall St

Taking the occasional loss comes part and parcel with investing on the stock market. And there's no doubt that Athena Resource Limited (ASX:AHN) stock has had a really bad year. The share price has slid 65% in that time. Even if you look out three years, the returns are still disappointing, with the share price down (the share price is down 54%) in that time.

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Check out our latest analysis for Athena Resource

With just AU$260,002 worth of revenue in twelve months, we don't think the market considers Athena Resource to have proven its business plan. We can't help wondering why it's publicly listed so early in its journey. Are venture capitalists not interested? So it seems shareholders are too busy dreaming about the progress to come than dwelling on the current (lack of) revenue. It seems likely some shareholders believe that Athena Resource will find or develop a valuable new mine before too long.

We think companies that have neither significant revenues nor profits are pretty 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 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). Some Athena Resource investors have already had a taste of the bitterness stocks like this can leave in the mouth.

Athena Resource had net debt of AU$951,331 when it last reported in December 2018, according to our data. That puts it in the highest risk category, according to our analysis. But since the share price has dived -65% in the last year, it looks like some investors think it's time to abandon ship, so to speak. You can see in the image below, how Athena Resource's cash levels have changed over time (click to see the values).

ASX:AHN Historical Debt, May 16th 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. Given that situation, would you be concerned if it turned out insiders were relentlessly selling stock? I'd like that just about as much as I like to drink milk and fruit juice mixed together. It only takes a moment for you to check whether we have identified any insider sales recently.

What about the Total Shareholder Return (TSR)?

Investors should note that there's a difference between Athena Resource's total shareholder return (TSR) and its share price change, which we've covered above. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. We note that Athena Resource's TSR, at -62% is higher than its share price return of -65%. When you consider it hasn't been paying a dividend, this data suggests shareholders have benefitted from a spin-off, or had the opportunity to acquire attractively priced shares in a discounted capital raising.

A Different Perspective

Investors in Athena Resource had a tough year, with a total loss of 62%, against a market gain of about 6.7%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 17% over the last half decade. 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. You might want to assess this data-rich visualization of its earnings, revenue and cash flow.

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.

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 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. Thank you for reading.