Some stocks are best avoided. We don't wish catastrophic capital loss on anyone. For example, we sympathize with anyone who was caught holding Cullen Resources Limited (ASX:CUL) during the five years that saw its share price drop a whopping 92%. Unhappily, the share price slid 9.1% in the last week.
While a drop like that is definitely a body blow, money isn't as important as health and happiness.
Cullen Resources recorded just AU$1,783 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, investors may be hoping that Cullen Resources finds some valuable resources, before it runs out of money.
We think companies that have neither significant revenues nor profits are pretty high risk. There is almost always a chance they will need to raise more capital, and their progress - and share price - will dictate how dilutive that is to current holders. 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. It certainly is a dangerous place to invest, as Cullen Resources investors might realise.
Cullen Resources had cash in excess of all liabilities of just AU$150k when it last reported (December 2019). So if it hasn't remedied the situation already, it will almost certainly have to raise more capital soon. That probably explains why the share price is down 40% per year, over 5 years . You can click on the image below to see (in greater detail) how Cullen Resources's cash levels have changed over time. The image below shows how Cullen 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 would feel more nervous about the company if that were so. It only takes a moment for you to check whether we have identified any insider sales recently.
A Different Perspective
We regret to report that Cullen Resources shareholders are down 17% for the year. Unfortunately, that's worse than the broader market decline of 4.9%. 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. However, the loss over the last year isn't as bad as the 38% per annum loss investors have suffered over the last half decade. We'd need to see some sustained improvements in the key metrics before we could muster much enthusiasm. It's always interesting to track share price performance over the longer term. But to understand Cullen Resources better, we need to consider many other factors. Even so, be aware that Cullen Resources is showing 6 warning signs in our investment analysis , and 4 of those are concerning...
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Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU exchanges.
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