Imagine Owning Rimfire Pacific Mining (ASX:RIM) And Trying To Stomach The 90% Share Price Drop
It is doubtless a positive to see that the Rimfire Pacific Mining NL (ASX:RIM) share price has gained some 50% in the last three months. But only the myopic could ignore the astounding decline over three years. In that time the share price has melted like a snowball in the desert, down 90%. So it sure is nice to see a big of an improvement. The thing to think about is whether the business has really turned around.
We really feel for shareholders in this scenario. It's a good reminder of the importance of diversification, and it's worth keeping in mind there's more to life than money, anyway.
See our latest analysis for Rimfire Pacific Mining
With just AU$3,570 worth of revenue in twelve months, we don't think the market considers Rimfire Pacific Mining 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. It seems likely some shareholders believe that Rimfire Pacific Mining will find or develop a valuable new mine before too long.
We think companies that have neither significant revenues nor profits are pretty 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). Some Rimfire Pacific Mining investors have already had a taste of the bitterness stocks like this can leave in the mouth.
Rimfire Pacific Mining had cash in excess of all liabilities of just AU$245k when it last reported (December 2019). So if it has not already moved to replenish reserves, we think the near-term chances of a capital raising event are pretty high. With that in mind, you can understand why the share price dropped 54% per year, over 3 years . You can see in the image below, how Rimfire Pacific Mining's cash levels have changed over time (click to see the values). You can click on the image below to see (in greater detail) how Rimfire Pacific Mining's cash levels have changed over time.
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 would feel more nervous about the company if that were so. It costs nothing but a moment of your time to see if we are picking up on any insider selling.
A Different Perspective
We regret to report that Rimfire Pacific Mining shareholders are down 50% for the year. Unfortunately, that's worse than the broader market decline of 4.4%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 27% over the last half decade. We realise that Baron Rothschild 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 business. 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 instance, we've identified 6 warning signs for Rimfire Pacific Mining (3 are a bit concerning) that you should be aware of.
But note: Rimfire Pacific Mining 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.
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.
