Yahoo Finance Did You Manage To Avoid Highlands Natural Resources's (LON:HNR) Devastating 75% Share Price Drop?
Every investor on earth makes bad calls sometimes. But really bad investments should be rare. So take a moment to sympathize with the long term shareholders of Highlands Natural Resources plc (LON:HNR), who have seen the share price tank a massive 75% over a three year period. That might cause some serious doubts about the merits of the initial decision to buy the stock, to put it mildly. And the ride hasn't got any smoother in recent times over the last year, with the price 68% lower in that time. And the share price decline continued over the last week, dropping some 30%. This could be related to the recent financial results - you can catch up on the most recent data by reading our company report.
View our latest analysis for Highlands Natural Resources
Highlands Natural Resources recorded just UK£1,016,399 in revenue over the last twelve months, which isn't really enough for us to consider it to have a proven product. 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). For example, they may be hoping that Highlands Natural 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 go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. It certainly is a dangerous place to invest, as Highlands Natural Resources investors might realise.
Highlands Natural Resources had cash in excess of all liabilities of just UK£194k when it last reported (March 2019). So if it hasn't remedied the situation already, it will almost certainly have to raise more capital soon. That probably explains why the share price is down 37% per year, over 3 years. You can click on the image below to see (in greater detail) how Highlands Natural Resources's cash levels have changed over time. The image below shows how Highlands Natural 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? I would feel more nervous about the company if that were so. You can click here to see if there are insiders selling.
A Different Perspective
The last twelve months weren't great for Highlands Natural Resources shares, which cost holders 68%, while the market was up about 2.0%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. The three-year loss of 37% per year isn't as bad as the last twelve months, suggesting that the company has not been able to convince the market it has solved its problems. We would be wary of buying into a company with unsolved problems, although some investors will buy into struggling stocks if they believe the price is sufficiently attractive. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.
But note: Highlands Natural Resources 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 GB exchanges.
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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.
