Yahoo Finance Introducing Savannah Resources (LON:SAV), The Stock That Tanked 78%
The art and science of stock market investing requires a tolerance for losing money on some of the shares you buy. But it would be foolish to simply accept every extremely large loss as an inevitable part of the game. We wouldn't blame Savannah Resources Plc (LON:SAV) shareholders if they were still in shock after the stock dropped like a lead balloon, down 78% in just one year. That'd be a striking reminder about the importance of diversification. Notably, shareholders had a tough run over the longer term, too, with a drop of 78% in the last three years. Furthermore, it's down 51% in about a quarter. That's not much fun for holders. However, one could argue that the price has been influenced by the general market, which is down 32% in the same timeframe.
View our latest analysis for Savannah Resources
Savannah Resources recorded just UK£35,325 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. 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 Savannah Resources finds some valuable resources, 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 to raise equity. So the share price itself impacts the value of the shares (as it determines the cost of capital). 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). Savannah Resources has already given some investors a taste of the bitter losses that high risk investing can cause.
Savannah Resources had cash in excess of all liabilities of just UK£2.6m when it last reported (December 2019). So if it hasn't remedied the situation already, it will almost certainly have to raise more capital soon. With that in mind, you can understand why the share price dropped 78% in the last year. You can click on the image below to see (in greater detail) how Savannah Resources'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? It would bother me, that's for sure. It only takes a moment for you to check whether we have identified any insider sales recently.
A Different Perspective
We regret to report that Savannah Resources shareholders are down 78% for the year. Unfortunately, that's worse than the broader market decline of 23%. 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 11% 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 Savannah Resources better, we need to consider many other factors. For example, we've discovered 7 warning signs for Savannah Resources (3 shouldn't be ignored!) that you should be aware of before investing here.
If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.
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.
