The worst result, after buying shares in a company (assuming no leverage), would be if you lose all the money you put in. But when you pick a company that is really flourishing, you can make more than 100%. For instance the Hurricane Energy plc (LON:HUR) share price is 234% higher than it was three years ago. Most would be happy with that.
With zero revenue generated over twelve months, we don't think that Hurricane Energy has proved its business plan yet. So it seems that the investors more focused on would could be, than paying attention to the current revenues (or lack thereof). For example, they may be hoping that Hurricane Energy finds fossil fuels with an exploration program, before it runs out of money.
Companies that lack both meaningful revenue and profits are usually considered high risk. The 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. Hurricane Energy has already given some investors a taste of the sweet gains that high risk investing can generate, if your timing is right.
Hurricane Energy had net debt of US$263,228,000 when it last reported in December 2018, according to our data. That puts it in the highest risk category, according to our analysis. So the fact that the stock is up 49% per year, over 3 years shows that high risks can lead to high rewards, sometimes. It's clear more than a few people believe in the potential. You can click on the image below to see (in greater detail) how Hurricane Energy's cash and debt levels have changed over time.
In reality it's hard to have much certainty when valuing a business that has neither revenue or profit. However you can take a look at whether insiders have been buying up shares. If they are buying a significant amount of shares, that's certainly a good thing. Luckily we are in a position to provide you with this free chart of insider buying (and selling).
A Different Perspective
It's nice to see that Hurricane Energy shareholders have received a total shareholder return of 21% over the last year. That's better than the annualised return of 8.7% over half a decade, implying that the company is doing better recently. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. It is all well and good that insiders have been buying shares, but we suggest you check here to see what price insiders were buying at.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on GB 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 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. Thank you for reading.