The European Cobalt (ASX:EUC) Share Price Is Down 99% So Some Shareholders Are Very Salty
We're definitely into long term investing, but some companies are simply bad investments over any time frame. We really hate to see fellow investors lose their hard-earned money. Imagine if you held European Cobalt Limited (ASX:EUC) for half a decade as the share price tanked 99%. And it's not just long term holders hurting, because the stock is down 61% in the last year. Unfortunately the share price momentum is still quite negative, with prices down 11% in thirty days.
While a drop like that is definitely a body blow, money isn't as important as health and happiness.
Check out our latest analysis for European Cobalt
We don't think European Cobalt's revenue of AU$453,013 is enough to establish significant demand. You have to wonder why venture capitalists aren't funding it. 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 European Cobalt will find or develop a valuable new mine before too long.
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 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). Some European Cobalt investors have already had a taste of the bitterness stocks like this can leave in the mouth.
European Cobalt had cash in excess of all liabilities of AU$13m when it last reported (December 2018). That's not too bad but management may have to think about raising capital or taking on debt, unless the company is close to breaking even. We'd venture that shareholders are concerned about the need for more capital, because the share price has dropped 65% per year, over 5 years. You can click on the image below to see (in greater detail) how European Cobalt's cash levels have changed over time. You can see in the image below, how European Cobalt's cash levels have changed over time (click to see the values).
Of course, the truth is that it is hard to value companies without much revenue or profit. Would it bother you if insiders were selling the stock? I would feel more nervous about the company if that were so. You can click here to see if there are insiders selling.
A Different Perspective
European Cobalt shareholders are down 61% for the year, but the market itself is up 13%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. Unfortunately, longer term shareholders are suffering worse, given the loss of 64% doled out over the last five years. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. You could get a better understanding of European Cobalt's growth by checking out this more detailed historical graph of earnings, revenue and cash flow.
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.
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.
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. Thank you for reading.
