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Volatility 101: Should AfriTin Mining (LON:ATM) Shares Have Dropped 44%?

Simply Wall St

It's easy to match the overall market return by buying an index fund. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. Unfortunately the AfriTin Mining Limited (LON:ATM) share price slid 44% over twelve months. That's disappointing when you consider the market declined 15%. We wouldn't rush to judgement on AfriTin Mining because we don't have a long term history to look at. Shareholders have had an even rougher run lately, with the share price down 33% in the last 90 days. However, one could argue that the price has been influenced by the general market, which is down 22% in the same timeframe.

See our latest analysis for AfriTin Mining

With just UK£11,198 worth of revenue in twelve months, we don't think the market considers AfriTin Mining to have proven its business plan. 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). It seems likely some shareholders believe that AfriTin Mining will find or develop a valuable new mine before too long.

As a general rule, if a company doesn't have much revenue, and it loses money, then it is a high risk investment. There was already a significant chance that they would need more money for business development, and indeed they recently put themselves at the mercy of capital markets and raised equity. 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.

AfriTin Mining had liabilities exceeding cash when it last reported, according to our data. That put it in the highest risk category, according to our analysis. But with the share price diving 44% in the last year , it's probably fair to say that some shareholders no longer believe the company will succeed or they are worried about dilution with the recent cash injection. You can click on the image below to see (in greater detail) how AfriTin Mining's cash levels have changed over time.

AIM:ATM Historical Debt May 16th 2020

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? 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

We doubt AfriTin Mining shareholders are happy with the loss of 44% over twelve months. That falls short of the market, which lost 15%. That's disappointing, but it's worth keeping in mind that the market-wide selling wouldn't have helped. The share price decline has continued throughout the most recent three months, down 33%, 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. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Consider for instance, the ever-present spectre of investment risk. We've identified 6 warning signs with AfriTin Mining (at least 2 which are a bit concerning) , and understanding them should be part of your investment process.

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 GB exchanges.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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.

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.