It's nice to see the American Lithium Corp. (CVE:LI) share price up 13% in a week. But only the myopic could ignore the astounding decline over three years. The share price has sunk like a leaky ship, down 96% in that time. Arguably, the recent bounce is to be expected after such a bad drop. Only time will tell if the company can sustain the turnaround.
While a drop like that is definitely a body blow, money isn't as important as health and happiness.
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With zero revenue generated over twelve months, we don't think that American Lithium has proved its business plan yet. We can't help wondering why it's publicly listed so early in its journey. Are venture capitalists not interested? As a result, we think it's unlikely shareholders are paying much attention to current revenue, but rather speculating on growth in the years to come. It seems likely some shareholders believe that American Lithium will find or develop a valuable new mine before too long.
Companies that lack both meaningful revenue and profits are usually considered 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 go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. Some American Lithium investors have already had a taste of the bitterness stocks like this can leave in the mouth.
When it reported in November 2018 American Lithium had minimal cash in excess of all liabilities consider its expenditure: just CA$1.8m to be specific. So if it hasn't remedied the situation already, it will almost certainly have to raise more capital soon. With that in mind, you can understand why the share price dropped 65% per year, over 3 years. You can click on the image below to see (in greater detail) how American Lithium'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'd like that just about as much as I like to drink milk and fruit juice mixed together. It costs nothing but a moment of your time to see if we are picking up on any insider selling.
A Different Perspective
We're pleased to report that American Lithium shareholders have received a total shareholder return of 8.0% over one year. There's no doubt those recent returns are much better than the TSR loss of 20% per year over five years. We generally put more weight on the long term performance over the short term, but the recent improvement could hint at a (positive) inflection point within the business. If you would like to research American Lithium in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
We will like American Lithium 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.
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 firstname.lastname@example.org. 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.