As an investor, mistakes are inevitable. But really bad investments should be rare. So spare a thought for the long term shareholders of Coro Energy plc (LON:CORO); the share price is down a whopping 91% in the last three years. That'd be enough to cause even the strongest minds some disquiet. And more recent buyers are having a tough time too, with a drop of 65% in the last year. The falls have accelerated recently, with the share price down 61% in the last three months. However, one could argue that the price has been influenced by the general market, which is down 30% in the same timeframe.
We really hope anyone holding through that price crash has a diversified portfolio. Even when you lose money, you don't have to lose the lesson.
With just US$2,096,039 worth of revenue in twelve months, we don't think the market considers Coro Energy to have proven its business plan. You have to wonder why venture capitalists aren't funding it. 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, they may be hoping that Coro Energy 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. You should be aware that there is always a chance that this sort of company will need to issue more shares to raise money to continue pursuing its business plan. 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). Coro Energy has already given some investors a taste of the bitter losses that high risk investing can cause.
Our data indicates that Coro Energy had US$22m 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 -55% per year, over 3 years , it looks like some investors think it's time to abandon ship, so to speak. You can see in the image below, how Coro Energy's cash levels have changed over time (click to see the values). You can click on the image below to see (in greater detail) how Coro Energy's cash levels have changed over time.
In reality it's hard to have much certainty when valuing a business that has neither revenue or profit. Would it bother you if insiders were selling the stock? 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
Coro Energy shareholders are down 65% for the year, falling short of the market return. Meanwhile, the broader market slid about 23%, likely weighing on the stock. The three-year loss of 55% 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. Although Baron Rothschild famously said to "buy when there's blood in the streets, even if the blood is your own", he also focusses on high quality stocks with solid prospects. 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. Case in point: We've spotted 7 warning signs for Coro Energy you should be aware of, and 3 of them are potentially serious.
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 firstname.lastname@example.org. 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.
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