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Did Changing Sentiment Drive Katoro Gold's (LON:KAT) Share Price Down By 31%?

Simply Wall St

It is doubtless a positive to see that the Katoro Gold plc (LON:KAT) share price has gained some 47% in the last three months. But that doesn't change the fact that the returns over the last year have been less than pleasing. The cold reality is that the stock has dropped 31% in one year, under-performing the market.

View our latest analysis for Katoro Gold

With zero revenue generated over twelve months, we don't think that Katoro Gold has proved its business plan yet. 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, investors may be hoping that Katoro Gold finds some valuable resources, before it runs out of money.

We think companies that have neither significant revenues nor profits are pretty high risk. 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 companies like this go on to deliver on their plan, making good money for shareholders, many end in painful losses and eventual de-listing.

When it reported in December 2018 Katoro Gold had minimal cash in excess of all liabilities consider its expenditure: just UK£237k 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. With that in mind, you can understand why the share price dropped 31% in the last year. The image below shows how Katoro Gold'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 Katoro Gold's balance sheet has changed over time; if you want to see the precise values, simply click on the image.

AIM:KAT Historical Debt, August 1st 2019

Of course, the truth is that it is hard to value companies without much revenue or profit. Would it bother you if insiders were selling the 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.

A Different Perspective

Given that the market gained 2.3% in the last year, Katoro Gold shareholders might be miffed that they lost 31%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. It's great to see a nice little 47% rebound in the last three months. Let's just hope this isn't the widely-feared 'dead cat bounce' (which would indicate further declines to come). Shareholders might want to examine this detailed historical graph of past 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 GB 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.