Even the best investor on earth makes unsuccessful investments. But serious investors should think long and hard about avoiding extreme losses. We wouldn't blame Hybrid Minerals Inc. (CVE:HZ) shareholders if they were still in shock after the stock dropped like a lead balloon, down 77% in just one year. While some investors are willing to stomach this sort of loss, they are usually professionals who spread their bets thinly. Hybrid Minerals hasn't been listed for long, so although we're wary of recent listings that perform poorly, it may still prove itself with time. And the share price decline continued over the last week, dropping some 13%.
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Hybrid Minerals hasn't yet reported any revenue yet, 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. For example, investors may be hoping that Hybrid Minerals 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 such companies go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. Some Hybrid Minerals investors have already had a taste of the bitterness stocks like this can leave in the mouth.
Our data indicates that Hybrid Minerals had CA$361,640 more in total liabilities than it had cash, when it last reported in December 2018. That makes it extremely high risk, in our view. But with the share price diving 77% in the last year, it's probably fair to say that some shareholders no longer believe the company will succeed. The image below shows how Hybrid Minerals'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. Would it bother you if insiders were selling the stock? It would bother me, that's for sure. It only takes a moment for you to check whether we have identified any insider sales recently.
A Different Perspective
Investors in Hybrid Minerals had a tough year, with a total loss of 77%, against a market gain of about 1.5%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 17% over the last half decade. 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. You could get a better understanding of Hybrid Minerals's growth by checking out this more detailed historical graph of earnings, revenue and cash flow.
If you are like me, then you will 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 CA exchanges.
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