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Did Changing Sentiment Drive Vision Lithium's (CVE:VLI) Share Price Down A Painful 84%?

Simply Wall St

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Vision Lithium Inc. (CVE:VLI) shareholders should be happy to see the share price up 30% in the last week. But that doesn't change the fact that the returns over the last year have been stomach churning. To wit, the stock has dropped 84% over the last year. So it's not that amazing to see a bit of a bounce. The important thing is whether the company can turn it around, longer term.

We really hope anyone holding through that price crash has a diversified portfolio. Even when you lose money, you don't have to lose the lesson.

View our latest analysis for Vision Lithium

With zero revenue generated over twelve months, we don't think that Vision Lithium 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? 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 Vision Lithium will find or develop a valuable new mine before too long.

Companies that lack both meaningful revenue and profits are usually considered high risk. 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). Some Vision Lithium investors have already had a taste of the bitterness stocks like this can leave in the mouth.

Our data indicates that Vision Lithium had CA$324,960 more in total liabilities than it had cash, when it last reported in February 2019. That makes it extremely high risk, in our view. But with the share price diving 84% in the last year, it's probably fair to say that some shareholders no longer believe the company will succeed. You can see in the image below, how Vision Lithium's cash levels have changed over time (click to see the values). You can see in the image below, how Vision Lithium's cash levels have changed over time (click to see the values).

TSXV:VLI Historical Debt, June 27th 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. You can click here to see if there are insiders selling.

A Different Perspective

Investors in Vision Lithium had a tough year, with a total loss of 84%, against a market gain of about 1.1%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 15% per year over five years. 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. If you would like to research Vision Lithium in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.

We will like Vision Lithium better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA 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.