The Fitzroy River (ASX:FZR) Share Price Is Down 44% So Some Shareholders Are Getting Worried

Simply Wall St

Ideally, your overall portfolio should beat the market average. But the main game is to find enough winners to more than offset the losers At this point some shareholders may be questioning their investment in Fitzroy River Corporation Limited (ASX:FZR), since the last five years saw the share price fall 44%. And it's not just long term holders hurting, because the stock is down 29% in the last year. Unhappily, the share price slid 5.1% in the last week.

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See our latest analysis for Fitzroy River

Fitzroy River recorded just AU$337,000 in revenue over the last twelve months, which isn't really enough for us to consider it to have a proven product. This state of affairs suggests that venture capitalists won't provide funds on attractive terms. So it seems that the investors focused more on what could be, than paying attention to the current revenues (or lack thereof). For example, they may be hoping that Fitzroy River finds fossil fuels with an exploration program, before it runs out of money.

Companies that lack both meaningful revenue and profits are usually considered 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 companies like this go on to deliver on their plan, making good money for shareholders, many end in painful losses and eventual de-listing.

Fitzroy River has plenty of cash in the bank, with net cash sitting at AU$1.4m, when it last reported (December 2018). That allows management to focus on growing the business, and not worry too much about raising capital. But since the share price has dropped 11% per year, over 5 years, it seems like the market might have been over-excited previously. The image below shows how Fitzroy River's balance sheet has changed over time; if you want to see the precise values, simply click on the image.

ASX:FZR Historical Debt, May 21st 2019

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. What if insiders are ditching the stock hand over fist? 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

Investors in Fitzroy River had a tough year, with a total loss of 29%, against a market gain of about 8.5%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 11% over the last half decade. We realise that Buffett has said investors should 'buy when there is blood on the streets', but we caution that investors should first be sure they are buying a high quality businesses. You might want to assess this data-rich visualization of its earnings, revenue and cash flow.

For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

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.