Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. When you buy individual stocks, you can make higher profits, but you also face the risk of under-performance. Unfortunately the Tempus Resources Limited (ASX:TMR) share price slid 47% over twelve months. That's well bellow the market return of -18%. Tempus Resources may have better days ahead, of course; we've only looked at a one year period. Unfortunately the share price momentum is still quite negative, with prices down 45% in thirty days. However, we note the price may have been impacted by the broader market, which is down 31% in the same time period.
With just AU$3,853 worth of revenue in twelve months, we don't think the market considers Tempus Resources to have proven its business plan. This state of affairs suggests that venture capitalists won't provide funds on attractive terms. So it seems that the investors focused more on what could be, than paying attention to the current revenues (or lack thereof). For example, investors may be hoping that Tempus Resources 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.
Our data indicates that Tempus Resources had AU$572k more in total liabilities than it had cash, when it last reported in December 2019. That puts it in the highest risk category, according to our analysis. But with the share price diving 47% 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 Tempus Resources'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? 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
We doubt Tempus Resources shareholders are happy with the loss of 47% over twelve months. That falls short of the market, which lost 18%. There's no doubt that's a disappointment, but the stock may well have fared better in a stronger market. With the stock down 31% over the last three months, the market doesn't seem to believe that the company has solved all its problems. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Case in point: We've spotted 7 warning signs for Tempus Resources you should be aware of, and 4 of them are potentially serious.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
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.
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