Yahoo Finance Did You Manage To Avoid Norwest Energy's (ASX:NWE) 33% Share Price Drop?
Norwest Energy NL (ASX:NWE) shareholders should be happy to see the share price up 20% in the last week. But if you look at the last five years the returns have not been good. In fact, the share price is down 33%, which falls well short of the return you could get by buying an index fund.
See our latest analysis for Norwest Energy
Norwest Energy recorded just AU$364,884 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 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 Norwest Energy 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 was already a significant chance that they would need more money for business development, and indeed they recently put themselves at the mercy of capital markets and raised equity. So the share price itself impacts the value of the shares (as it determines the cost of capital). While some such companies go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt.
When it last reported, Norwest Energy had minimal cash in excess of all liabilities. So it is a good thing that the company has looked to remedy the situation by raising more capital recently. With that in mind, you can imagine there may be other factors that caused the share price to drop 7.8% per year, over 5 years. You can see in the image below, how Norwest Energy's cash levels have changed over time (click to see the values).
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? It would bother me, that's for sure. It only takes a moment for you to check whether we have identified any insider sales recently.
What about the Total Shareholder Return (TSR)?
Investors should note that there's a difference between Norwest Energy's total shareholder return (TSR) and its share price change, which we've covered above. The TSR attempts to capture the value of dividends (as if they were reinvested) as well as any spin-offs or discounted capital raisings offered to shareholders. We note that Norwest Energy's TSR, at -29% is higher than its share price return of -33%. When you consider it hasn't been paying a dividend, this data suggests shareholders have benefitted from a spin-off, or had the opportunity to acquire attractively priced shares in a discounted capital raising.
A Different Perspective
It's nice to see that Norwest Energy shareholders have received a total shareholder return of 20% over the last year. Notably the five-year annualised TSR loss of 6.5% per year compares very unfavourably with the recent share price performance. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. It's always interesting to track share price performance over the longer term. But to understand Norwest Energy better, we need to consider many other factors. Even so, be aware that Norwest Energy is showing 5 warning signs in our investment analysis , and 2 of those are significant...
If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.
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.
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