Introducing Firefly Resources (ASX:FFR), The Stock That Collapsed 95%
Every investor on earth makes bad calls sometimes. But really big losses can really drag down an overall portfolio. So take a moment to sympathize with the long term shareholders of Firefly Resources Limited (ASX:FFR), who have seen the share price tank a massive 95% over a three year period. That would be a disturbing experience. And the ride hasn't got any smoother in recent times over the last year, with the price 83% lower in that time. Shareholders have had an even rougher run lately, with the share price down 49% in the last 90 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 Firefly Resources
We don't think Firefly Resources's revenue of AU$608,523 is enough to establish significant demand. 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. It seems likely some shareholders believe that Firefly Resources will find or develop a valuable new mine before too long.
We think companies that have neither significant revenues nor profits are pretty 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. It certainly is a dangerous place to invest, as Firefly Resources investors might realise.
When it reported in June 2019 Firefly Resources had minimal cash in excess of all liabilities consider its expenditure: just AU$60k to be specific. So if it has not already moved to replenish reserves, we think the near-term chances of a capital raising event are pretty high. That probably explains why the share price is down 64% per year, over 3 years . The image below shows how Firefly Resources's balance sheet has changed over time; if you want to see the precise values, simply click on the image. The image below shows how Firefly Resources's balance sheet has changed over time; if you want to see the precise values, simply click on the image.
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. Given that situation, would you be concerned if it turned out insiders were relentlessly selling stock? I would feel more nervous about the company if that were so. It only takes a moment for you to check whether we have identified any insider sales recently.
A Different Perspective
Firefly Resources shareholders are down 83% for the year, but the market itself is up 22%. 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 33% 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. If you want to research this stock further, the data on insider buying is an obvious place to start. You can click here to see who has been buying shares - and the price they paid.
Firefly Resources is not the only stock that insiders are buying. 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.
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.
