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Easy Come, Easy Go: How Abilene Oil and Gas (ASX:ABL) Shareholders Got Unlucky And Saw 93% Of Their Cash Evaporate

Simply Wall St

Some stocks are best avoided. It hits us in the gut when we see fellow investors suffer a loss. Imagine if you held Abilene Oil and Gas Limited (ASX:ABL) for half a decade as the share price tanked 93%. And we doubt long term believers are the only worried holders, since the stock price has declined 75% over the last twelve months. There was little comfort for shareholders in the last week as the price declined a further 67%.

We really feel for shareholders in this scenario. It's a good reminder of the importance of diversification, and it's worth keeping in mind there's more to life than money, anyway.

See our latest analysis for Abilene Oil and Gas

We don't think Abilene Oil and Gas's revenue of AU$32,814 is enough to establish significant demand. We can't help wondering why it's publicly listed so early in its journey. Are venture capitalists not interested? So it seems that the investors focused more on what could be, than paying attention to the current revenues (or lack thereof). For example, they may be hoping that Abilene Oil and Gas finds fossil fuels with an exploration program, before it runs out of money.

We think companies that have neither significant revenues nor profits are pretty high risk. There is usually a significant chance that they will need more money for business development, putting them at the mercy of capital markets to raise equity. So the share price itself impacts the value of the shares (as it determines the cost of capital). 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 Abilene Oil and Gas investors have already had a taste of the bitterness stocks like this can leave in the mouth.

Our data indicates that Abilene Oil and Gas had AU$6.2m 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 41% per year, over 5 years , it's probably fair to say that some shareholders no longer believe the company will succeed. You can see in the image below, how Abilene Oil and Gas's cash levels have changed over time (click to see the values).

ASX:ABL Historical Debt March 26th 2020

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. You can click here to see if there are insiders selling.

A Different Perspective

While the broader market lost about 17% in the twelve months, Abilene Oil and Gas shareholders did even worse, losing 75%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 41% 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. 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. For example, we've discovered 5 warning signs for Abilene Oil and Gas (4 can't be ignored!) that you should be aware of before investing here.

For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

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.