The art and science of stock market investing requires a tolerance for losing money on some of the shares you buy. But it's not unreasonable to try to avoid truly shocking capital losses. So spare a thought for the long term shareholders of Calima Energy Limited (ASX:CE1); the share price is down a whopping 90% in the last twelve months. While some investors are willing to stomach this sort of loss, they are usually professionals who spread their bets thinly. Even if you look out three years, the returns are still disappointing, with the share price down81% in that time. Furthermore, it's down 44% in about a quarter. That's not much fun for holders.
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.
With just AU$438,105 worth of revenue in twelve months, we don't think the market considers Calima Energy 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. For example, they may be hoping that Calima Energy finds fossil fuels with an exploration program, before it runs out of money.
As a general rule, if a company doesn't have much revenue, and it loses money, then it is a high risk investment. 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). Calima Energy has already given some investors a taste of the bitter losses that high risk investing can cause.
Our data indicates that Calima Energy had AU$10m more in total liabilities than it had cash, when it last reported in June 2019. That puts it in the highest risk category, according to our analysis. But since the share price has dived -90% 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 Calima Energy's cash levels have changed over time (click to see the values). The image below shows how Calima Energy's balance sheet has changed over time; if you want to see the precise values, simply click on the image.
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. What if insiders are ditching the stock hand over fist? 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 Calima Energy had a tough year, with a total loss of 90%, against a market gain of about 26%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 16% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For instance, we've identified 6 warning signs for Calima Energy (4 are a bit unpleasant) that you should be aware of.
Calima Energy is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.
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 email@example.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.
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. Thank you for reading.