Yahoo Finance Did You Manage To Avoid Red Sky Energy's (ASX:ROG) Devastating 94% Share Price Drop?
It is doubtless a positive to see that the Red Sky Energy Limited (ASX:ROG) share price has gained some 50% in the last three months. But spare a thought for the long term holders, who have held the stock as it bled value over the last five years. In fact, the share price has tumbled down a mountain to land 94% lower after that period. So we don't gain too much confidence from the recent recovery. The real question is whether the business can leave its past behind and improve itself over the years ahead.
While a drop like that is definitely a body blow, money isn't as important as health and happiness.
See our latest analysis for Red Sky Energy
We don't think Red Sky Energy's revenue of AU$2,416 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? As a result, we think it's unlikely shareholders are paying much attention to current revenue, but rather speculating on growth in the years to come. For example, they may be hoping that Red Sky 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 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 go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. It certainly is a dangerous place to invest, as Red Sky Energy investors might realise.
Our data indicates that Red Sky Energy had AU$1.3m more in total liabilities than it had cash, when it last reported in June 2019. That puts it in the highest risk category, according to our analysis. But with the share price diving 43% 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 Red Sky Energy's balance sheet has changed over time; if you want to see the precise values, simply click on the image. The image below shows how Red Sky Energy'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. 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
We're pleased to report that Red Sky Energy shareholders have received a total shareholder return of 50% over one year. That certainly beats the loss of about 43% per year over the last half decade. This makes us a little wary, but the business might have turned around its fortunes. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
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.
