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It's not possible to invest over long periods without making some bad investments. But really bad investments should be rare. So consider, for a moment, the misfortune of Belmont Resources Inc. (CVE:BEA) investors who have held the stock for three years as it declined a whopping 84%. That'd be enough to cause even the strongest minds some disquiet. And more recent buyers are having a tough time too, with a drop of 63% in the last year. On top of that, the share price has dropped a further 67% in a month.
We really hope anyone holding through that price crash has a diversified portfolio. Even when you lose money, you don't have to lose the lesson.
With zero revenue generated over twelve months, we don't think that Belmont Resources has proved its business plan yet. You have to wonder why venture capitalists aren't funding it. 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 Belmont Resources finds some valuable resources, before it runs out of money.
Companies that lack both meaningful revenue and profits are usually considered 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 companies like this go on to deliver on their plan, making good money for shareholders, many end in painful losses and eventual de-listing. Belmont Resources has already given some investors a taste of the bitter losses that high risk investing can cause.
Our data indicates that Belmont Resources had CA$20,057 more in total liabilities than it had cash, when it last reported in October 2018. That makes it extremely high risk, in our view. But since the share price has dived -46% per year, over 3 years, it looks like some investors think it's time to abandon ship, so to speak. You can see in the image below, how Belmont Resources's cash levels have changed over time (click to see the values).
Of course, the truth is that it is hard to value companies without much revenue or profit. What if insiders are ditching the stock hand over fist? I'd like that just about as much as I like to drink milk and fruit juice mixed together. It costs nothing but a moment of your time to see if we are picking up on any insider selling.
A Different Perspective
Belmont Resources shareholders are down 63% for the year, but the market itself is up 2.5%. 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. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 30% 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. If you would like to research Belmont Resources in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can 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 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. Thank you for reading.