Yahoo Finance Investors Who Bought Lefroy Exploration (ASX:LEX) Shares A Year Ago Are Now Down 13%
Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. When you buy individual stocks, you can make higher profits, but you also face the risk of under-performance. Unfortunately the Lefroy Exploration Limited (ASX:LEX) share price slid 13% over twelve months. That contrasts poorly with the market decline of 9.5%. At least the damage isn't so bad if you look at the last three years, since the stock is down 8.3% in that time. Furthermore, it's down 11% in about a quarter. That's not much fun for holders. However, one could argue that the price has been influenced by the general market, which is down 23% in the same timeframe.
See our latest analysis for Lefroy Exploration
With just AU$21,000 worth of revenue in twelve months, we don't think the market considers Lefroy Exploration to have proven its business plan. You have to wonder why venture capitalists aren't funding it. 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 Lefroy Exploration finds some valuable resources, before it runs out of money.
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.
When it reported in December 2019 Lefroy Exploration had minimal cash in excess of all liabilities consider its expenditure: just AU$2.0m to be specific. So if it has not already moved to replenish reserves, we think the near-term chances of a capital raising event are pretty high. With that in mind, you can understand why the share price dropped 13% in the last year. You can see in the image below, how Lefroy Exploration'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. What if insiders are ditching the stock hand over fist? 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
The last twelve months weren't great for Lefroy Exploration shares, which performed worse than the market, costing holders 13%. Meanwhile, the broader market slid about 9.5%, likely weighing on the stock. The three-year loss of 2.9% per year isn't as bad as the last twelve months, suggesting that the company has not been able to convince the market it has solved its problems. Although Baron Rothschild famously said to "buy when there's blood in the streets, even if the blood is your own", he also focusses on high quality stocks with solid prospects. It's always interesting to track share price performance over the longer term. But to understand Lefroy Exploration better, we need to consider many other factors. For instance, we've identified 6 warning signs for Lefroy Exploration (3 shouldn't be ignored) that you should be aware of.
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.
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