If You Had Bought Golden Rim Resources (ASX:GMR) Stock Five Years Ago, You'd Be Sitting On A 91% Loss, Today
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We're definitely into long term investing, but some companies are simply bad investments over any time frame. We really hate to see fellow investors lose their hard-earned money. Anyone who held Golden Rim Resources Ltd (ASX:GMR) for five years would be nursing their metaphorical wounds since the share price dropped 91% in that time. And it's not just long term holders hurting, because the stock is down 68% in the last year. The good news is that the stock is up 9.1% in the last week.
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.
View our latest analysis for Golden Rim Resources
Golden Rim Resources didn't have any revenue in the last year, so it's fair to say it doesn't yet have a proven product (or at least not one people are paying for). 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, investors may be hoping that Golden Rim 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 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 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 Golden Rim Resources investors might realise.
When it reported in December 2018 Golden Rim Resources had minimal cash in excess of all liabilities consider its expenditure: just AU$326k to be specific. So if it hasn't remedied the situation already, it will almost certainly have to raise more capital soon. That probably explains why the share price is down 38% per year, over 5 years. You can see in the image below, how Golden Rim 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. 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
While the broader market gained around 8.8% in the last year, Golden Rim Resources shareholders lost 68%. 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 37% 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. If you would like to research Golden Rim Resources in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
But note: Golden Rim Resources may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).
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 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.
