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Imagine Owning Cape Range (ASX:CAG) While The Price Tanked 65%

Simply Wall St

Even the best stock pickers will make plenty of bad investments. Anyone who held Cape Range Limited (ASX:CAG) over the last year knows what a loser feels like. The share price is down a hefty 65% in that time. Cape Range may have better days ahead, of course; we've only looked at a one year period. The falls have accelerated recently, with the share price down 28% in the last three months. This could be related to the recent financial results - you can catch up on the most recent data by reading our company report.

Check out our latest analysis for Cape Range

With just AU$1,310,483 worth of revenue in twelve months, we don't think the market considers Cape Range to have proven its business plan. We can't help wondering why it's publicly listed so early in its journey. Are venture capitalists not interested? So it seems shareholders are too busy dreaming about the progress to come than dwelling on the current (lack of) revenue. Investors will be hoping that Cape Range can make progress and gain better traction for the business, before it runs low on cash.

We think companies that have neither significant revenues nor profits are pretty 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 Cape Range investors have already had a taste of the bitterness stocks like this can leave in the mouth.

Cape Range has plenty of cash in the bank, with cash in excess of all liabilities sitting at AU$3.4m, when it last reported (December 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 65% in the last year , it seems like the market might have been over-excited previously. The image below shows how Cape Range's balance sheet has changed over time; if you want to see the precise values, simply click on the image. You can click on the image below to see (in greater detail) how Cape Range's cash levels have changed over time.

ASX:CAG Historical Debt, March 7th 2020

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. You can click here to see if there are insiders selling.

A Different Perspective

While Cape Range shareholders are down 65% for the year, the market itself is up 3.5%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. The share price decline has continued throughout the most recent three months, down 28%, suggesting an absence of enthusiasm from investors. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For example, we've discovered 6 warning signs for Cape Range (2 are a bit concerning!) that you should be aware of before investing here.

Of course Cape Range 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 AU exchanges.

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.

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. Thank you for reading.