We're definitely into long term investing, but some companies are simply bad investments over any time frame. We don't wish catastrophic capital loss on anyone. Anyone who held Resource Mining Corporation Limited (ASX:RMI) for five years would be nursing their metaphorical wounds since the share price dropped 75% in that time. And it's not just long term holders hurting, because the stock is down 44% in the last year. Shareholders have had an even rougher run lately, with the share price down 29% in the last 90 days. However, one could argue that the price has been influenced by the general market, which is down 30% in the same timeframe.
With zero revenue generated over twelve months, we don't think that Resource Mining has proved its business plan yet. We can't help wondering why it's publicly listed so early in its journey. Are venture capitalists not interested? 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 Resource Mining finds some valuable resources, before it runs out of money.
We think companies that have neither significant revenues nor profits are pretty high risk. 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). It certainly is a dangerous place to invest, as Resource Mining investors might realise.
Our data indicates that Resource Mining had AU$5.6m more in total liabilities than it had cash, when it last reported in December 2019. That puts it in the highest risk category, according to our analysis. But with the share price diving 24% per year, over 5 years , it's probably fair to say that some shareholders no longer believe the company will succeed. You can click on the image below to see (in greater detail) how Resource Mining's cash levels have changed over time.
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. 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
While the broader market lost about 19% in the twelve months, Resource Mining shareholders did even worse, losing 44%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 24% per year over five years. 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. It's always interesting to track share price performance over the longer term. But to understand Resource Mining better, we need to consider many other factors. Even so, be aware that Resource Mining is showing 5 warning signs in our investment analysis , and 4 of those don't sit too well with us...
We will like Resource Mining better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU 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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