Did Changing Sentiment Drive Canterbury Resources's (ASX:CBY) Share Price Down A Painful 74%?
As every investor would know, you don't hit a homerun every time you swing. But it would be foolish to simply accept every extremely large loss as an inevitable part of the game. We wouldn't blame Canterbury Resources Limited (ASX:CBY) shareholders if they were still in shock after the stock dropped like a lead balloon, down 74% in just one year. A loss like this is a stark reminder that portfolio diversification is important. Because Canterbury Resources hasn't been listed for many years, the market is still learning about how the business performs. More recently, the share price has dropped a further 62% in a month. This could be related to the recent financial results - you can catch up on the most recent data by reading our company report.
Check out our latest analysis for Canterbury Resources
We don't think Canterbury Resources's revenue of AU$8,407 is enough to establish significant demand. You have to wonder why venture capitalists aren't funding it. So it seems that the investors focused more on what could be, than paying attention to the current revenues (or lack thereof). It seems likely some shareholders believe that Canterbury Resources will find or develop a valuable new mine before too long.
Companies that lack both meaningful revenue and profits are usually considered 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 go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. Canterbury Resources has already given some investors a taste of the bitter losses that high risk investing can cause.
Canterbury Resources had liabilities exceeding cash by AU$153k when it last reported in December 2019, according to our data. That puts it in the highest risk category, according to our analysis. But with the share price diving 74% in the last year , it's probably fair to say that some shareholders no longer believe the company will succeed. You can click on the image below to see (in greater detail) how Canterbury Resources's cash levels have changed over time. You can see in the image below, how Canterbury Resources's cash levels have changed over time (click to see the values).
In reality it's hard to have much certainty when valuing a business that has neither revenue or profit. What if insiders are ditching the stock hand over fist? 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.
A Different Perspective
We doubt Canterbury Resources shareholders are happy with the loss of 74% over twelve months. That falls short of the market, which lost 7.8%. That's disappointing, but it's worth keeping in mind that the market-wide selling wouldn't have helped. With the stock down 60% over the last three months, the market doesn't seem to believe that the company has solved all its problems. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. It's always interesting to track share price performance over the longer term. But to understand Canterbury Resources better, we need to consider many other factors. Like risks, for instance. Every company has them, and we've spotted 7 warning signs for Canterbury Resources (of which 5 are significant!) you should know about.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will 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.
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.
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