Investing in stocks comes with the risk that the share price will fall. Anyone who held Okapi Resources Limited (ASX:OKR) over the last year knows what a loser feels like. To wit the share price is down 61% in that time. We wouldn't rush to judgement on Okapi Resources because we don't have a long term history to look at. The falls have accelerated recently, with the share price down 51% in the last three months.
Okapi Resources recorded just AU$23,662 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? As a result, we think it's unlikely shareholders are paying much attention to current revenue, but rather speculating on growth in the years to come. It seems likely some shareholders believe that Okapi Resources 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. It certainly is a dangerous place to invest, as Okapi Resources investors might realise.
Okapi Resources has plenty of cash in the bank, with cash in excess of all liabilities sitting at AU$3.1m, when it last reported (June 2019). That allows management to focus on growing the business, and not worry too much about raising capital. But since the share price has dropped 61% in the last year , it seems like the market might have been over-excited previously. You can click on the image below to see (in greater detail) how Okapi Resources's cash levels have changed over time. You can click on the image below to see (in greater detail) how Okapi Resources's cash levels have changed over time.
Of course, the truth is that it is hard to value companies without much revenue or profit. Would it bother you if insiders were selling the stock? 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
Okapi Resources shareholders are down 61% for the year, even worse than the market loss of 4.4%. That's disappointing, but it's worth keeping in mind that the market-wide selling wouldn't have helped. With the stock down 51% over the last three months, the market doesn't seem to believe that the company has solved all its problems. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. 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. To that end, you should learn about the 5 warning signs we've spotted with Okapi Resources (including 3 which is make us uncomfortable) .
For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
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 email@example.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.