Investing in stocks comes with the risk that the share price will fall. Unfortunately, shareholders of Kintavar Exploration Inc. (CVE:KTR) have suffered share price declines over the last year. In that relatively short period, the share price has plunged 66%. We wouldn't rush to judgement on Kintavar Exploration because we don't have a long term history to look at. The falls have accelerated recently, with the share price down 44% in the last three months.
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With zero revenue generated over twelve months, we don't think that Kintavar Exploration has proved its business plan yet. This state of affairs suggests that venture capitalists won't provide funds on attractive terms. 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. For example, investors may be hoping that Kintavar Exploration finds some valuable resources, before it runs out of money.
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. Kintavar Exploration has already given some investors a taste of the bitter losses that high risk investing can cause.
When it last reported its balance sheet in December 2018, Kintavar Exploration had cash in excess of all liabilities of CA$5.5m. That's not too bad but management may have to think about raising capital or taking on debt, unless the company is close to breaking even. With the share price down 66% in the last year, it seems likely that the need for cash is weighing on investors' minds. The image below shows how Kintavar Exploration's balance sheet has changed over time; if you want to see the precise values, simply click on the image.
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 would feel more nervous about the company if that were so. It only takes a moment for you to check whether we have identified any insider sales recently.
A Different Perspective
While Kintavar Exploration shareholders are down 66% for the year, the market itself is up 1.5%. While the aim is to do better than that, it's worth recalling that even great long-term investments sometimes underperform for a year or more. The share price decline has continued throughout the most recent three months, down 44%, suggesting an absence of enthusiasm from investors. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. If you would like to research Kintavar Exploration 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: Kintavar Exploration 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 CA exchanges.
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