Imagine Owning Emperor Energy (ASX:EMP) And Trying To Stomach The 95% Share Price Drop
Some stocks are best avoided. We really hate to see fellow investors lose their hard-earned money. Imagine if you held Emperor Energy Limited (ASX:EMP) for half a decade as the share price tanked 95%. Shareholders have had an even rougher run lately, with the share price down 12% in the last 90 days.
We really feel for shareholders in this scenario. It's a good reminder of the importance of diversification, and it's worth keeping in mind there's more to life than money, anyway.
See our latest analysis for Emperor Energy
We don't think Emperor Energy's revenue of AU$2,263 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? So it seems shareholders are too busy dreaming about the progress to come than dwelling on the current (lack of) revenue. It seems likely some shareholders believe that Emperor Energy will discover or develop fossil fuel before too long.
Companies that lack both meaningful revenue and profits are usually considered high risk. 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 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). Emperor Energy has already given some investors a taste of the bitter losses that high risk investing can cause.
Our data indicates that Emperor Energy had AU$133k more in total liabilities than it had cash, when it last reported in June 2019. That makes it extremely high risk, in our view. But since the share price has dived -45% per year, over 5 years , it looks like some investors think it's time to abandon ship, so to speak. You can see in the image below, how Emperor Energy's cash levels have changed over time (click to see the values). You can see in the image below, how Emperor Energy's cash levels have changed over time (click to see the values).
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. You can click here to see if there are insiders selling.
What about the Total Shareholder Return (TSR)?
Investors should note that there's a difference between Emperor Energy's total shareholder return (TSR) and its share price change, which we've covered above. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Emperor Energy hasn't been paying dividends, but its TSR of -93% exceeds its share price return of -95%, implying it has either spun-off a business, or raised capital at a discount; thereby providing additional value to shareholders.
A Different Perspective
Emperor Energy provided a TSR of 1.3% over the last twelve months. Unfortunately this falls short of the market return. On the bright side, that's still a gain, and it is certainly better than the yearly loss of about 40% endured over half a decade. So this might be a sign the business has turned its fortunes around. Before spending more time on Emperor Energy it might be wise to click here to see if insiders have been buying or selling shares.
Of course, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will grow earnings.
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.