The truth is that if you invest for long enough, you're going to end up with some losing stocks. But the long term shareholders of Kesselrun Resources Ltd. (CVE:KES) have had an unfortunate run in the last three years. Regrettably, they have had to cope with a 65% drop in the share price over that period. The more recent news is of little comfort, with the share price down 64% in a year. Unfortunately the share price momentum is still quite negative, with prices down 20% in thirty days.
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With zero revenue generated over twelve months, we don't think that Kesselrun 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). For example, investors may be hoping that Kesselrun Resources finds some valuable resources, before it runs out of money.
Companies that lack both meaningful revenue and profits are usually considered high risk. 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). Some Kesselrun Resources investors have already had a taste of the bitterness stocks like this can leave in the mouth.
Kesselrun Resources has plenty of cash in the bank, with cash in excess of all liabilities sitting at CA$1.0m, when it last reported (January 2019). That allows management to focus on growing the business, and not worry too much about raising capital. But since the share price has dropped 30% per year, over 3 years, it seems like the market might have been over-excited previously. You can see in the image below, how Kesselrun Resources's cash levels have changed over time (click to see the values).
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. Given that situation, would you be concerned if it turned out insiders were relentlessly selling 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 1.5% in the last year, Kesselrun Resources shareholders lost 64%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 5.9% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. You could get a better understanding of Kesselrun Resources's growth by checking out this more detailed historical graph of earnings, revenue and cash flow.
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 CA exchanges.
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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.