Investing in stocks comes with the risk that the share price will fall. And there's no doubt that Terramin Australia Limited (ASX:TZN) stock has had a really bad year. To wit the share price is down 62% in that time. Notably, shareholders had a tough run over the longer term, too, with a drop of 46% in the last three years. Shareholders have had an even rougher run lately, with the share price down 33% in the last 90 days.
With just AU$252,000 worth of revenue in twelve months, we don't think the market considers Terramin Australia 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, investors may be hoping that Terramin Australia finds some valuable resources, 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 companies like this go on to deliver on their plan, making good money for shareholders, many end in painful losses and eventual de-listing. Some Terramin Australia investors have already had a taste of the bitterness stocks like this can leave in the mouth.
Terramin Australia had liabilities exceeding cash by AU$29m 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 62% 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 Terramin Australia's cash levels have changed over time (click to see the values). You can see in the image below, how Terramin Australia's cash levels have changed over time (click to see the values).
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 Terramin Australia had a tough year, with a total loss of 62%, against a market gain of about 19%. 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 8.5% over the last half decade. 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. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.
Of course Terramin Australia may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU 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 firstname.lastname@example.org. 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.