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Did Changing Sentiment Drive Calidus Resources's (ASX:CAI) Share Price Down By 17%?

Simply Wall St

It's easy to match the overall market return by buying an index fund. But if you buy individual stocks, you can do both better or worse than that. Investors in Calidus Resources Limited (ASX:CAI) have tasted that bitter downside in the last year, as the share price dropped 17%. That contrasts poorly with the market return of 12%. Calidus Resources may have better days ahead, of course; we've only looked at a one year period. There was little comfort for shareholders in the last week as the price declined a further 7.4%.

Check out our latest analysis for Calidus Resources

We don't think Calidus Resources's revenue of AU$3,691,174 is enough to establish significant demand. This state of affairs suggests that venture capitalists won't provide funds on attractive terms. 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. It seems likely some shareholders believe that Calidus Resources will find or develop a valuable new mine before too long.

As a general rule, if a company doesn't have much revenue, and it loses money, then it is a high risk investment. 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 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 June 2019 Calidus Resources had minimal cash in excess of all liabilities consider its expenditure: just AU$3.4m to be specific. So if it has not already moved to replenish reserves, we think the near-term chances of a capital raising event are pretty high. That probably explains why the share price is down 17% in the last year . You can click on the image below to see (in greater detail) how Calidus Resources's cash levels have changed over time. 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, September 30th 2019
ASX:CAI Historical Debt, September 30th 2019

In reality it's hard to have much certainty when valuing a business that has neither revenue or profit. 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 costs nothing but a moment of your time to see if we are picking up on any insider selling.

A Different Perspective

While Calidus Resources shareholders are down 17% for the year, the market itself is up 12%. 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. Before spending more time on Calidus Resources it might be wise to click here to see if insiders have been buying or selling shares.

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 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.