Yahoo Finance Did Changing Sentiment Drive Rafaella Resources's (ASX:RFR) Share Price Down By 20%?
The simplest way to benefit from a rising market is to buy an index fund. While individual stocks can be big winners, plenty more fail to generate satisfactory returns. Unfortunately the Rafaella Resources Limited (ASX:RFR) share price slid 20% over twelve months. That falls noticeably short of the market return of around -12%. We wouldn't rush to judgement on Rafaella Resources because we don't have a long term history to look at. It's down 50% in about a month. However, we note the price may have been impacted by the broader market, which is down 27% in the same time period.
View our latest analysis for Rafaella Resources
With just AU$38,233 worth of revenue in twelve months, we don't think the market considers Rafaella Resources to have proven its business plan. This state of affairs suggests that venture capitalists won't provide funds on attractive terms. So it seems shareholders are too busy dreaming about the progress to come than dwelling on the current (lack of) revenue. It seems likely some shareholders believe that Rafaella Resources will find or develop a valuable new mine before too long.
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 to raise equity. 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).
Rafaella Resources had cash in excess of all liabilities of AU$3.1m when it last reported (December 2019). 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 20% in the last year. The image below shows how Rafaella 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. 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. You can click here to see if there are insiders selling.
A Different Perspective
We doubt Rafaella Resources shareholders are happy with the loss of 20% over twelve months. That falls short of the market, which lost 12%. There's no doubt that's a disappointment, but the stock may well have fared better in a stronger market. Notably, the loss over the last year isn't as bad as the 43% drop in the last three months. So it seems like some holders have been dumping the stock of late - and that's not bullish. It's always interesting to track share price performance over the longer term. But to understand Rafaella Resources better, we need to consider many other factors. Like risks, for instance. Every company has them, and we've spotted 6 warning signs for Rafaella Resources (of which 3 shouldn't be ignored!) you should know about.
Rafaella 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.
