LiCo Energy Metals Inc. (CVE:LIC) shareholders should be happy to see the share price up 12% in the last month. But the last three years have seen a terrible decline. Indeed, the share price is down a whopping 90% in the last three years. So it's about time shareholders saw some gains. Only time will tell if the company can sustain the turnaround.
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.
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LiCo Energy Metals hasn't yet reported any revenue yet, so it's as much a business idea as an actual business. You have to wonder why venture capitalists aren't funding it. So it seems that the investors focused more on what could be, than paying attention to the current revenues (or lack thereof). It seems likely some shareholders believe that LiCo Energy Metals 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. 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 companies like this go on to deliver on their plan, making good money for shareholders, many end in painful losses and eventual de-listing. Some LiCo Energy Metals investors have already had a taste of the bitterness stocks like this can leave in the mouth.
Our data indicates that LiCo Energy Metals had CA$271,155 more in total liabilities than it had cash, when it last reported in December 2018. That makes it extremely high risk, in our view. But since the share price has dived -54% per year, over 3 years, it looks like some investors think it's time to abandon ship, so to speak. You can see in the image below, how LiCo Energy Metals's cash levels have changed over time (click to see the values).
In reality it's hard to have much certainty when valuing a business that has neither 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 the broader market gained around 1.7% in the last year, LiCo Energy Metals shareholders lost 83%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 33% over the last half decade. 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 LiCo Energy Metals 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 would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA exchanges.
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