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Did You Manage To Avoid Active Energy Group's (LON:AEG) Devastating 88% Share Price Drop?

It is doubtless a positive to see that the Active Energy Group PLC (LON:AEG) share price has gained some 36% in the last three months. But will that heal all the wounds inflicted over 5 years of declines? Unlikely. Indeed, the share price is down a whopping 88% in that time. So we don't gain too much confidence from the recent recovery. The million dollar question is whether the company can justify a long term recovery.

We really feel for shareholders in this scenario. It's a good reminder of the importance of diversification, and it's worth keeping in mind there's more to life than money, anyway.

See our latest analysis for Active Energy Group

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We don't think Active Energy Group's revenue of US$294,830 is enough to establish significant demand. We can't help wondering why it's publicly listed so early in its journey. Are venture capitalists not interested? So it seems shareholders are too busy dreaming about the progress to come than dwelling on the current (lack of) revenue. It seems likely some shareholders believe that Active Energy Group will discover or develop fossil fuel before too long.

We think companies that have neither significant revenues nor profits are pretty 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 go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. Some Active Energy Group investors have already had a taste of the bitterness stocks like this can leave in the mouth.

Our data indicates that Active Energy Group had US$19m 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 -35% per year, over 5 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 Active Energy Group's cash levels have changed over time. The image below shows how Active Energy Group's balance sheet has changed over time; if you want to see the precise values, simply click on the image.

AIM:AEG Historical Debt, March 10th 2020
AIM:AEG Historical Debt, March 10th 2020

Of course, the truth is that it is hard to value companies without much revenue or profit. 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. You can click here to see if there are insiders selling.

A Different Perspective

We regret to report that Active Energy Group shareholders are down 15% for the year. Unfortunately, that's worse than the broader market decline of 8.8%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. However, the loss over the last year isn't as bad as the 35% per annum loss investors have suffered over the last half decade. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. 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. For instance, we've identified 7 warning signs for Active Energy Group (4 are a bit concerning) that you should be aware of.

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 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.