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Volatility 101: Should Graphex Mining (ASX:GPX) Shares Have Dropped 25%?

Simply Wall St

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While not a mind-blowing move, it is good to see that the Graphex Mining Limited (ASX:GPX) share price has gained 19% in the last three months. But that doesn't change the fact that the returns over the last year have been less than pleasing. In fact, the price has declined 25% in a year, falling short of the returns you could get by investing in an index fund.

See our latest analysis for Graphex Mining

With just AU$21,392 worth of revenue in twelve months, we don't think the market considers Graphex Mining to have proven its business plan. This state of affairs suggests that venture capitalists won't provide funds on attractive terms. As a result, we think it's unlikely shareholders are paying much attention to current revenue, but rather speculating on growth in the years to come. For example, investors may be hoping that Graphex Mining finds some valuable resources, 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 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 Graphex Mining had net debt of AU$3,133,511 when it last reported in December 2018. That makes it extremely high risk, in our view. But with the share price diving 25% in the last year, it's probably fair to say that some shareholders no longer believe the company will succeed. The image below shows how Graphex Mining's balance sheet has changed over time; if you want to see the precise values, simply click on the image.

ASX:GPX Historical Debt, April 1st 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. What if insiders are ditching the stock hand over fist? 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

While Graphex Mining shareholders are down 25% for the year, the market itself is up 11%. While the aim is to do better than that, it's worth recalling that even great long-term investments sometimes underperform for a year or more. Putting aside the last twelve months, it's good to see the share price has rebounded by 19%, in the last ninety days. This could just be a bounce because the selling was too aggressive, but fingers crossed it's the start of a new trend. Before spending more time on Graphex Mining it might be wise to click here to see if insiders have been buying or selling shares.

For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU 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.