U.S. Markets open in 7 hrs 53 mins

Volatility 101: Should Azarga Uranium (TSE:AZZ) Shares Have Dropped 23%?

Simply Wall St

Want to participate in a short research study? Help shape the future of investing tools and you could win a $250 gift card!

Many investors define successful investing as beating the market average over the long term. But if you try your hand at stock picking, your risk returning less than the market. We regret to report that long term Azarga Uranium Corp. (TSE:AZZ) shareholders have had that experience, with the share price dropping 23% in three years, versus a market return of about 23%. The good news is that the stock is up 6.7% in the last week.

View our latest analysis for Azarga Uranium

With zero revenue generated over twelve months, we don't think that Azarga Uranium has proved its business plan yet. You have to wonder why venture capitalists aren't funding it. 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 Azarga Uranium will discover or develop fossil fuel before too long.

Companies that lack both meaningful revenue and profits are usually considered high risk. There is almost always a chance they will need to raise more capital, and their progress - and share price - will dictate how dilutive that is to current holders. 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).

Our data indicates that Azarga Uranium had US$4,273,501 more in total liabilities than it had cash, when it last reported in March 2019. That puts it in the highest risk category, according to our analysis. But since the share price has dived -8.2% per year, over 3 years, it looks like some investors think it's time to abandon ship, so to speak. You can click on the image below to see (in greater detail) how Azarga Uranium's cash levels have changed over time.

TSX:AZZ Historical Debt, June 21st 2019

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. 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

Azarga Uranium shareholders are down 7.7% for the year, but the broader market is up 1.6%. Of course the long term matters more than the short term, and even great stocks will sometimes have a poor year. Unfortunately, the longer term story isn't pretty, with investment losses running at 8.2% per year over three years. We'd need clear signs of growth in the underlying business before we could muster much enthusiasm for this one. 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: Azarga Uranium 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 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. Thank you for reading.