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Imagine Owning Raise Production (CVE:RPC) And Trying To Stomach The 90% Share Price Drop

Simply Wall St

Some stocks are best avoided. We don't wish catastrophic capital loss on anyone. Anyone who held Raise Production Inc. (CVE:RPC) for five years would be nursing their metaphorical wounds since the share price dropped 90% in that time. And some of the more recent buyers are probably worried, too, with the stock falling 26% in the last year. Shareholders have had an even rougher run lately, with the share price down 39% in the last 90 days.

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.

See our latest analysis for Raise Production

With just CA$799,286 worth of revenue in twelve months, we don't think the market considers Raise Production to have proven its business plan. 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, they may be hoping that Raise Production finds fossil fuels with an exploration program, before it runs out of money.

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). It certainly is a dangerous place to invest, as Raise Production investors might realise.

Raise Production had liabilities exceeding cash by CA$2.2m when it last reported in September 2019, according to our data. That makes it extremely high risk, in our view. But with the share price diving 37% per year, over 5 years , it's probably fair to say that some shareholders no longer believe the company will succeed. The image below shows how Raise Production'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 Raise Production's cash levels have changed over time.

TSXV:RPC Historical Debt, February 17th 2020

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. Would it bother you if insiders were selling the stock? 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 the broader market gained around 9.1% in the last year, Raise Production shareholders lost 26%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, longer term shareholders are suffering worse, given the loss of 37% doled out over the last five years. We'd need to see some sustained improvements in the key metrics before we could muster much enthusiasm. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Case in point: We've spotted 7 warning signs for Raise Production you should be aware of, and 4 of them are a bit unpleasant.

We will like Raise Production better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA 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.