Some stocks are best avoided. We don't wish catastrophic capital loss on anyone. Anyone who held Petrolympic Ltd. (CVE:PCQ) for five years would be nursing their metaphorical wounds since the share price dropped 82% in that time. And it's not just long term holders hurting, because the stock is down 33% in the last year. The good news is that the stock is up 27% in the last week.
While a drop like that is definitely a body blow, money isn't as important as health and happiness.
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Petrolympic didn't have any revenue in the last year, so it's fair to say it doesn't yet have a proven product (or at least not one people are paying for). We can't help wondering why it's publicly listed so early in its journey. Are venture capitalists not interested? So it seems shareholders are too busy dreaming about the progress to come than dwelling on the current (lack of) revenue. For example, they may be hoping that Petrolympic finds fossil fuels with an exploration program, before it runs out of money.
As a general rule, if a company doesn't have much revenue, and it loses money, then it is a high risk investment. 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 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). Petrolympic has already given some investors a taste of the bitter losses that high risk investing can cause.
Petrolympic had liabilities exceeding cash by CA$367,245 when it last reported in December 2018, according to our data. That puts it in the highest risk category, according to our analysis. But with the share price diving 29% per year, over 5 years, it's probably fair to say that some shareholders no longer believe the company will succeed. The image below shows how Petrolympic's balance sheet has changed over time; if you want to see the precise values, simply click on the image.
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 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
Investors in Petrolympic had a tough year, with a total loss of 33%, against a market gain of about 2.1%. 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, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 29% over the last half decade. 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. 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 CA exchanges.
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.