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Easy Come, Easy Go: How Teras Resources (CVE:TRA) Shareholders Got Unlucky And Saw 73% Of Their Cash Evaporate

Simply Wall St

As every investor would know, not every swing hits the sweet spot. But you want to avoid the really big losses like the plague. So consider, for a moment, the misfortune of Teras Resources Inc. (CVE:TRA) investors who have held the stock for three years as it declined a whopping 73%. That might cause some serious doubts about the merits of the initial decision to buy the stock, to put it mildly. There was little comfort for shareholders in the last week as the price declined a further 11%.

View our latest analysis for Teras Resources

Teras Resources 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. 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 Teras Resources 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 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). It certainly is a dangerous place to invest, as Teras Resources investors might realise.

Our data indicates that Teras Resources had CA$81k more in total liabilities than it had cash, when it last reported in May 2019. That puts it in the highest risk category, according to our analysis. But since the share price has dived -36% per year, over 3 years , it looks like some investors think it's time to abandon ship, so to speak. You can click on the image below to see (in greater detail) how Teras Resources's cash levels have changed over time. You can click on the image below to see (in greater detail) how Teras Resources's cash levels have changed over time.

TSXV:TRA Historical Debt, October 18th 2019

In reality it's hard to have much certainty when valuing a business that has neither revenue or profit. Would it bother you if insiders were selling the 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

Investors in Teras Resources had a tough year, with a total loss of 20%, against a market gain of about 5.2%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 18% per year over five years. 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 Teras Resources's growth by checking out this more detailed historical graph of earnings, revenue and cash flow.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA 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 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. Thank you for reading.