The art and science of stock market investing requires a tolerance for losing money on some of the shares you buy. But it should be a priority to avoid stomach churning catastrophes, wherever possible. So spare a thought for the long term shareholders of International Zeolite Corp. (CVE:IZ); the share price is down a whopping 73% in the last twelve months. That'd be enough to make even the strongest stomachs churn. Longer term investors have fared much better, since the share price is up 17% in three years. Furthermore, it's down 22% in about a quarter. That's not much fun for holders.
We don't think International Zeolite's revenue of CA$596,717 is enough to establish significant demand. This state of affairs suggests that venture capitalists won't provide funds on attractive terms. As a result, we think it's unlikely shareholders are paying much attention to current revenue, but rather speculating on growth in the years to come. For example, investors may be hoping that International Zeolite finds some valuable resources, before it runs out of money.
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). International Zeolite has already given some investors a taste of the bitter losses that high risk investing can cause.
Our data indicates that International Zeolite had net debt of CA$832,201 when it last reported in December 2018. That puts it in the highest risk category, according to our analysis. But since the share price has dived -73% 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 International Zeolite's cash and debt levels have changed over time.
In reality it's hard to have much certainty when valuing a business that has neither revenue or profit. Given that situation, would you be concerned if it turned out insiders were relentlessly selling stock? I'd like that just about as much as I like to drink milk and fruit juice mixed together. It only takes a moment for you to check whether we have identified any insider sales recently.
A Different Perspective
While the broader market gained around 7.9% in the last year, International Zeolite shareholders lost 73%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 6.9% per year over five years. We realise that Buffett has said investors should 'buy when there is blood on the streets', but we caution that investors should first be sure they are buying a high quality businesses. If you would like to research International Zeolite 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 like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
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.