The simplest way to benefit from a rising market is to buy an index fund. While individual stocks can be big winners, plenty more fail to generate satisfactory returns. Unfortunately the Altai Resources Inc. (CVE:ATI) share price slid 44% over twelve months. That's well below the market decline of 9.3%. To make matters worse, the returns over three years have also been really disappointing (the share price is 38% lower than three years ago). Furthermore, it's down 17% in about a quarter. That's not much fun for holders. But this could be related to the weak market, which is down 14% in the same period.
With just CA$127,584 worth of revenue in twelve months, we don't think the market considers Altai Resources 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 Altai Resources 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. There is almost always a chance they will need to raise more capital, and their progress - and share price - will dictate how dilutive that is to current holders. 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).
When it last reported its balance sheet in December 2019, Altai Resources could boast a strong position, with cash in excess of all liabilities of CA$3.4m. That allows management to focus on growing the business, and not worry too much about raising capital. But with the share price diving 44% in the last year , it could be that the price was previously too hyped up. You can click on the image below to see (in greater detail) how Altai Resources's cash levels have changed over time.
Of course, the truth is that it is hard to value companies without much revenue or profit. 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.
What about the Total Shareholder Return (TSR)?
We'd be remiss not to mention the difference between Altai Resources's total shareholder return (TSR) and its share price return. Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. We note that Altai Resources's TSR, at -44% is higher than its share price return of -44%. When you consider it hasn't been paying a dividend, this data suggests shareholders have benefitted from a spin-off, or had the opportunity to acquire attractively priced shares in a discounted capital raising.
A Different Perspective
We regret to report that Altai Resources shareholders are down 44% for the year. Unfortunately, that's worse than the broader market decline of 9.3%. 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. Longer term investors wouldn't be so upset, since they would have made 17%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. It's always interesting to track share price performance over the longer term. But to understand Altai Resources better, we need to consider many other factors. Like risks, for instance. Every company has them, and we've spotted 4 warning signs for Altai Resources (of which 2 are concerning!) you should know about.
We will like Altai Resources 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 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.
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