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Can You Imagine How Seahawk Ventures's (FRA:7SR) Shareholders Feel About The 67% Share Price Increase?

Simply Wall St

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One simple way to benefit from the stock market is to buy an index fund. But if you pick the right individual stocks, you could make more than that. For example, Seahawk Ventures Inc. (FRA:7SR) shareholders have seen the share price rise 67% over three years, well in excess of the market return (12%, not including dividends).

View our latest analysis for Seahawk Ventures

Seahawk Ventures didn't have any revenue in the last year, so it's fair to say it doesn't yet have a proven product (or at least not one people are paying for). 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 Seahawk Ventures finds some valuable resources, before it runs out of money.

Companies that lack both meaningful revenue and profits are usually considered 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). Of course, if you time it right, high risk investments like this can really pay off, as Seahawk Ventures investors might know.

Our data indicates that Seahawk Ventures had CA$121,902 more in total liabilities than it had cash, when it last reported in February 2019. That makes it extremely high risk, in our view. So the fact that the stock is up 19% per year, over 3 years shows that high risks can lead to high rewards, sometimes. Investors must really like its potential. The image below shows how Seahawk Ventures's balance sheet has changed over time; if you want to see the precise values, simply click on the image. The image below shows how Seahawk Ventures's balance sheet has changed over time; if you want to see the precise values, simply click on the image.

DB:7SR Historical Debt, July 11th 2019

Of course, the truth is that it is hard to value companies without much revenue or profit. One thing you can do is check if company insiders are buying shares. If they are buying a significant amount of shares, that's certainly a good thing. You can click here to see if there are insiders buying.

A Different Perspective

While the broader market lost about 2.4% in the twelve months, Seahawk Ventures shareholders did even worse, losing 43%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 0.3% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. If you would like to research Seahawk Ventures in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.

But note: Seahawk Ventures 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 DE 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 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. Thank you for reading.