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If You Had Bought Europa Oil & Gas (Holdings) (LON:EOG) Stock Five Years Ago, You'd Be Sitting On A 64% Loss, Today

Simply Wall St

Europa Oil & Gas (Holdings) plc (LON:EOG) shareholders should be happy to see the share price up 21% in the last week. But don't envy holders -- looking back over 5 years the returns have been really bad. In fact, the share price has declined rather badly, down some 64% in that time. So we're hesitant to put much weight behind the short term increase. Of course, this could be the start of a turnaround.

Check out our latest analysis for Europa Oil & Gas (Holdings)

We don't think Europa Oil & Gas (Holdings)'s revenue of UK£1,713,000 is enough to establish significant demand. This state of affairs suggests that venture capitalists won't provide funds on attractive terms. 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 Europa Oil & Gas (Holdings) will discover or develop fossil fuel before too long.

Companies that lack both meaningful revenue and profits are usually considered 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 companies like this go on to deliver on their plan, making good money for shareholders, many end in painful losses and eventual de-listing. Some Europa Oil & Gas (Holdings) investors have already had a taste of the bitterness stocks like this can leave in the mouth.

Our data indicates that Europa Oil & Gas (Holdings) had UK£857k more in total liabilities than it had cash, when it last reported in July 2019. That puts it in the highest risk category, according to our analysis. But with the share price diving 18% per year, over 5 years , it's probably fair to say that some shareholders no longer believe the company will succeed. You can see in the image below, how Europa Oil & Gas (Holdings)'s cash levels have changed over time (click to see the values). The image below shows how Europa Oil & Gas (Holdings)'s balance sheet has changed over time; if you want to see the precise values, simply click on the image.

AIM:EOG Historical Debt, December 19th 2019

In reality it's hard to have much certainty when valuing a business that has neither 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. It only takes a moment for you to check whether we have identified any insider sales recently.

A Different Perspective

While the broader market gained around 20% in the last year, Europa Oil & Gas (Holdings) shareholders lost 19%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 18% over the last half decade. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. You could get a better understanding of Europa Oil & Gas (Holdings)'s growth by checking out this more detailed historical graph of earnings, revenue and cash flow.

If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).

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.