Yahoo Finance Imagine Owning Australian Bauxite (ASX:ABX) While The Price Tanked 63%
We think intelligent long term investing is the way to go. But along the way some stocks are going to perform badly. For example the Australian Bauxite Limited (ASX:ABX) share price dropped 63% over five years. That's an unpleasant experience for long term holders. Unhappily, the share price slid 12% in the last week.
See our latest analysis for Australian Bauxite
With just AU$2,164,000 worth of revenue in twelve months, we don't think the market considers Australian Bauxite to have proven its business plan. 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 Australian Bauxite will find or develop a valuable new mine before too long.
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 such companies do very well over the long term, others become hyped up by promoters before eventually falling back down to earth, and going bankrupt (or being recapitalized). It certainly is a dangerous place to invest, as Australian Bauxite investors might realise.
Australian Bauxite had liabilities exceeding cash by AU$1.2m 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 18% per year, over 5 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 Australian Bauxite's cash levels have changed over time (click to see the values). The image below shows how Australian Bauxite'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? 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.
A Different Perspective
Australian Bauxite shareholders are down 7.6% for the year, but the market itself is up 11%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. However, the loss over the last year isn't as bad as the 18% per annum loss investors have suffered over the last half decade. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. For example, we've discovered 6 warning signs for Australian Bauxite (2 are significant!) that you should be aware of before investing here.
Of course Australian Bauxite may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
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.
