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Did You Manage To Avoid Freehill Mining's (ASX:FHS) 44% Share Price Drop?

Simply Wall St

The simplest way to benefit from a rising market is to buy an index fund. But if you buy individual stocks, you can do both better or worse than that. Unfortunately the Freehill Mining Limited (ASX:FHS) share price slid 44% over twelve months. That's well bellow the market return of 22%. We wouldn't rush to judgement on Freehill Mining because we don't have a long term history to look at. Even worse, it's down 18% in about a month, which isn't fun at all.

View our latest analysis for Freehill Mining

Freehill Mining hasn't yet reported any revenue, so it's as much a business idea as an actual business. 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 Freehill Mining 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. 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 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).

Freehill Mining had liabilities exceeding cash by AU$4.2m when it last reported in June 2019, according to our data. That makes it extremely high risk, in our view. But with the share price diving 44% 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 Freehill Mining's cash levels have changed over time (click to see the values). You can see in the image below, how Freehill Mining's cash levels have changed over time (click to see the values).

ASX:FHS Historical Debt, December 5th 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. Given that situation, would you be concerned if it turned out insiders were relentlessly selling stock? I would feel more nervous about the company if that were so. 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 22% in the last year, Freehill Mining shareholders might be miffed that they lost 44%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. The share price decline has continued throughout the most recent three months, down 13%, suggesting an absence of enthusiasm from investors. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. If you want to research this stock further, the data on insider buying is an obvious place to start. You can click here to see who has been buying shares - and the price they paid.

There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are 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 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.

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.