Element 25 Limited (ASX:E25) shareholders will doubtless be very grateful to see the share price up 36% in the last week. But in truth the last year hasn't been good for the share price. In fact, the price has declined 21% in a year, falling short of the returns you could get by investing in an index fund.

View our latest analysis for Element 25

We don't think Element 25's revenue of AU$76,594 is enough to establish significant demand. You have to wonder why venture capitalists aren't funding it. So it seems shareholders are too busy dreaming about the progress to come than dwelling on the current (lack of) revenue. For example, investors may be hoping that Element 25 finds some valuable resources, before it runs out of money.

Companies that lack both meaningful revenue and profits are usually considered high risk. There is almost always a chance they will need to raise more capital, and their progress - and share price - will dictate how dilutive that is to current holders. While some such companies go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt.

Element 25 has plenty of cash in the bank, with cash in excess of all liabilities sitting at AU$7.4m, when it last reported (December 2019). That allows management to focus on growing the business, and not worry too much about raising capital. But since the share price has dropped 21% in the last year , it seems like the market might have been over-excited previously. You can see in the image below, how Element 25's cash levels have changed over time (click to see the values).

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 costs nothing but a moment of your time to see if we are picking up on any insider selling.

A Different Perspective

We regret to report that Element 25 shareholders are down 21% for the year. Unfortunately, that's worse than the broader market decline of 15%. 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 2.5% 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 Element 25 better, we need to consider many other factors. Take risks, for example - Element 25 has 6 warning signs (and 3 which are a bit concerning) we think you should know about.

Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.

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 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.