The Petro Matad (FRA:HA3) Share Price Is Down 89% So Some Shareholders Are Rather Upset

Simply Wall St

Every investor on earth makes bad calls sometimes. But you want to avoid the really big losses like the plague. So spare a thought for the long term shareholders of Petro Matad Limited (FRA:HA3); the share price is down a whopping 89% in the last three years. That'd be enough to cause even the strongest minds some disquiet. The falls have accelerated recently, with the share price down 48% in the last three months.

While a drop like that is definitely a body blow, money isn't as important as health and happiness.

See our latest analysis for Petro Matad

We don't think Petro Matad's revenue of US$5,000 is enough to establish significant demand. We can't help wondering why it's publicly listed so early in its journey. Are venture capitalists not interested? 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 Petro Matad finds fossil fuels with an exploration program, before it runs out of money.

We think companies that have neither significant revenues nor profits are pretty high risk. There is usually a significant chance that they will need more money for business development, putting them at the mercy of capital markets. So the share price itself impacts the value of the shares (as it determines the cost of capital). 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. Petro Matad has already given some investors a taste of the bitter losses that high risk investing can cause.

Petro Matad had cash in excess of all liabilities of just US$16m when it last reported (June 2019). 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 52% per year, over 3 years . You can see in the image below, how Petro Matad's cash levels have changed over time (click to see the values). You can see in the image below, how Petro Matad's cash levels have changed over time (click to see the values).

DB:HA3 Historical Debt, January 27th 2020

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. You can click here to see if there are insiders selling.

A Different Perspective

Investors in Petro Matad had a tough year, with a total loss of 5.2%, against a market gain of about 17%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 5.0% per year over five years. 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 business. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For example, we've discovered 6 warning signs for Petro Matad (2 are concerning!) that you should be aware of before investing here.

Of course Petro Matad may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on DE 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.