Long term investing is the way to go, but that doesn't mean you should hold every stock forever. It hits us in the gut when we see fellow investors suffer a loss. Imagine if you held Strategic Energy Resources Limited (ASX:SER) for half a decade as the share price tanked 90%.
While a drop like that is definitely a body blow, money isn't as important as health and happiness.
We don't think Strategic Energy Resources's revenue of AU$3,880 is enough to establish significant demand. We can't help wondering why it's publicly listed so early in its journey. Are venture capitalists not interested? 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 Strategic Energy Resources finds some valuable resources, before it runs out of money.
As a general rule, if a company doesn't have much revenue, and it loses money, then it is a high risk investment. 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 companies like this go on to deliver on their plan, making good money for shareholders, many end in painful losses and eventual de-listing. It certainly is a dangerous place to invest, as Strategic Energy Resources investors might realise.
When it last reported its balance sheet in June 2019, Strategic Energy Resources had cash in excess of all liabilities of AU$962k. While that's nothing to panic about, there is some possibility the company will raise more capital, especially if profits are not imminent. With the share price down 37% per year, over 5 years , it seems likely that the need for cash is weighing on investors' minds. You can see in the image below, how Strategic Energy Resources'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 Strategic Energy Resources's cash levels have changed over time.
In reality it's hard to have much certainty when valuing a business that has neither revenue or profit. 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're pleased to report that Strategic Energy Resources shareholders have received a total shareholder return of 25% over one year. That certainly beats the loss of about 37% per year over the last half decade. This makes us a little wary, but the business might have turned around its fortunes. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.
If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.
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 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.
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.