As an investor, mistakes are inevitable. But really big losses can really drag down an overall portfolio. So take a moment to sympathize with the long term shareholders of Infinity Lithium Corporation Limited (ASX:INF), who have seen the share price tank a massive 84% over a three year period. That might cause some serious doubts about the merits of the initial decision to buy the stock, to put it mildly. And over the last year the share price fell 51%, so we doubt many shareholders are delighted. The falls have accelerated recently, with the share price down 31% in the last three months. Of course, this share price action may well have been influenced by the 28% decline in the broader market, throughout the period.
While a drop like that is definitely a body blow, money isn't as important as health and happiness.
Infinity Lithium recorded just AU$38,559 in revenue over the last twelve months, which isn't really enough for us to consider it to have a proven product. 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). It seems likely some shareholders believe that Infinity Lithium 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 companies like this go on to deliver on their plan, making good money for shareholders, many end in painful losses and eventual de-listing. Some Infinity Lithium investors have already had a taste of the bitterness stocks like this can leave in the mouth.
Infinity Lithium had liabilities exceeding cash by AU$355k when it last reported in December 2019, according to our data. That puts it in the highest risk category, according to our analysis. But with the share price diving 46% per year, over 3 years , it's probably fair to say that some shareholders no longer believe the company will succeed. The image below shows how Infinity Lithium's balance sheet has changed over time; if you want to see the precise values, simply click on the image.
Of course, the truth is that it is hard to value companies without much revenue or profit. 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 costs nothing but a moment of your time to see if we are picking up on any insider selling.
A Different Perspective
While the broader market lost about 17% in the twelve months, Infinity Lithium shareholders did even worse, losing 51%. Having said that, it's inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 4.2% per year over five years. We realise that Baron Rothschild 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. It's always interesting to track share price performance over the longer term. But to understand Infinity Lithium better, we need to consider many other factors. Like risks, for instance. Every company has them, and we've spotted 7 warning signs for Infinity Lithium (of which 4 are a bit unpleasant!) you should know about.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.
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 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.
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.