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Long term investing works well, but it doesn't always work for each individual stock. We don't wish catastrophic capital loss on anyone. For example, we sympathize with anyone who was caught holding Erin Ventures Inc. (CVE:EV) during the five years that saw its share price drop a whopping 89%. And it's not just long term holders hurting, because the stock is down 74% in the last year. The falls have accelerated recently, with the share price down 63% in the last three months.
While a drop like that is definitely a body blow, money isn't as important as health and happiness.
Erin Ventures hasn't yet reported any revenue yet, so it's as much a business idea as an actual business. You have to wonder why venture capitalists aren't funding it. So it seems shareholders are too busy dreaming about the progress to come than dwelling on the current (lack of) revenue. For example, investors may be hoping that Erin Ventures finds some valuable resources, before it runs out of money.
Companies that lack both meaningful revenue and profits are usually considered high risk. 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 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). It certainly is a dangerous place to invest, as Erin Ventures investors might realise.
Erin Ventures had liabilities exceeding cash by CA$506,158 when it last reported in March 2019, according to our data. That puts it in the highest risk category, according to our analysis. But since the share price has dived -36% per year, over 5 years, it looks like some investors think it's time to abandon ship, so to speak. The image below shows how Erin Ventures'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'd like that just about as much as I like to drink milk and fruit juice mixed together. It only takes a moment for you to check whether we have identified any insider sales recently.
A Different Perspective
Investors in Erin Ventures had a tough year, with a total loss of 74%, against a market gain of about 1.2%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 36% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. 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.
But note: Erin Ventures 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.
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.