As every investor would know, not every swing hits the sweet spot. But you want to avoid the really big losses like the plague. So take a moment to sympathize with the long term shareholders of Mount Burgess Mining N.L. (ASX:MTB), who have seen the share price tank a massive 75% 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 the ride hasn't got any smoother in recent times over the last year, with the price 60% lower in that time. It's down 33% in the last seven days.
Mount Burgess Mining hasn't yet reported any revenue, so it's as much a business idea as an actual business. You have to wonder why venture capitalists aren't funding it. 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 Mount Burgess Mining 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. You should be aware that there is always a chance that this sort of company will need to issue more shares to raise money to continue pursuing its business plan. While some such companies go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. Some Mount Burgess Mining investors have already had a taste of the bitterness stocks like this can leave in the mouth.
Mount Burgess Mining had liabilities exceeding cash by AU$3.5m when it last reported in June 2019, according to our data. That makes it extremely high risk, in our view. But with the share price diving 37% per year, over 3 years , it's probably fair to say that some shareholders no longer believe the company will succeed. You can see in the image below, how Mount Burgess Mining's cash levels have changed over time (click to see the values). You can see in the image below, how Mount Burgess Mining'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? I would feel more nervous about the company if that were so. You can click here to see if there are insiders selling.
A Different Perspective
While the broader market gained around 22% in the last year, Mount Burgess Mining shareholders lost 60%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 7.8% per year over five years. We realise that Buffett 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. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Like risks, for instance. Every company has them, and we've spotted 6 warning signs for Mount Burgess Mining (of which 3 don't sit too well with us!) you should know about.
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 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.
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