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Even the best investor on earth makes unsuccessful investments. But serious investors should think long and hard about avoiding extreme losses. We wouldn't blame Far Resources Ltd. (CNSX:FAT) shareholders if they were still in shock after the stock dropped like a lead balloon, down 72% in just one year. That'd be enough to make even the strongest stomachs churn. We note that it has not been easy for shareholders over three years, either; the share price is down 42% in that time. The falls have accelerated recently, with the share price down 48% in the last three months.
With zero revenue generated over twelve months, we don't think that Far Resources has proved its business plan yet. 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). It seems likely some shareholders believe that Far Resources will find or develop a valuable new mine before too long.
As a general rule, if a company doesn't have much revenue, and it loses money, then it is a high risk investment. You should be aware that there is always a chance that this sort of company will need to issue more shares to raise money to continue pursuing its business plan. 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). Far Resources has already given some investors a taste of the bitter losses that high risk investing can cause.
Far Resources had liabilities exceeding cash by CA$133,442 when it last reported in December 2018, according to our data. That makes it extremely high risk, in our view. But since the share price has dived -72% in the last year, 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 Far Resources's cash levels have changed over time. You can see in the image below, how Far Resources's cash levels have changed over time (click to see the values).
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? It would bother me, that's for sure. It costs nothing but a moment of your time to see if we are picking up on any insider selling.
A Different Perspective
Far Resources shareholders are down 72% for the year, but the broader market is up 0.7%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. The three-year loss of 17% per year isn't as bad as the last twelve months, suggesting that the company has not been able to convince the market it has solved its problems. We would be wary of buying into a company with unsolved problems, although some investors will buy into struggling stocks if they believe the price is sufficiently attractive. If you would like to research Far Resources in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
Of course Far Resources 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 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.