Torchlight Energy Resources, Inc. (NASDAQ:TRCH) shareholders should be happy to see the share price up 25% in the last quarter. But that is little comfort to those holding over the last half decade, sitting on a big loss. Indeed, the share price is down 63% in the period. So we're hesitant to put much weight behind the short term increase. But it could be that the fall was overdone.
With just US$1,065,847 worth of revenue in twelve months, we don't think the market considers Torchlight Energy Resources to have proven its business plan. 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, they may be hoping that Torchlight Energy Resources finds fossil fuels with an exploration program, 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 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). Torchlight Energy Resources has already given some investors a taste of the bitter losses that high risk investing can cause.
Our data indicates that Torchlight Energy Resources had US$22,372,672 more in total liabilities than it had cash, when it last reported in June 2019. That makes it extremely high risk, in our view. But since the share price has dived -18% per year, over 5 years, it looks like some investors think it's time to abandon ship, so to speak. You can see in the image below, how Torchlight Energy Resources's cash levels have changed over time (click to see the values). The image below shows how Torchlight Energy Resources's balance sheet has changed over time; if you want to see the precise values, simply click on the image.
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. Given that situation, would you be concerned if it turned out insiders were relentlessly selling stock? It would bother me, that's for sure. It only takes a moment for you to check whether we have identified any insider sales recently.
A Different Perspective
It's nice to see that Torchlight Energy Resources shareholders have received a total shareholder return of 22% over the last year. There's no doubt those recent returns are much better than the TSR loss of 18% per year over five years. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. Before spending more time on Torchlight Energy Resources it might be wise to click here to see if insiders have been buying or selling shares.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on US exchanges.
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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.