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Did You Manage To Avoid Torian Resources's (ASX:TNR) Devastating 95% Share Price Drop?

We're definitely into long term investing, but some companies are simply bad investments over any time frame. We don't wish catastrophic capital loss on anyone. For example, we sympathize with anyone who was caught holding Torian Resources Limited (ASX:TNR) during the five years that saw its share price drop a whopping 95%. And it's not just long term holders hurting, because the stock is down 68% in the last year. Furthermore, it's down 36% in about a quarter. That's not much fun for holders.

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 Torian Resources

With just AU$10,000 worth of revenue in twelve months, we don't think the market considers Torian Resources 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 Torian 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. There is usually a significant chance that they will need more money for business development, putting them at the mercy of capital markets. So the share price itself impacts the value of the shares (as it determines the cost of capital). 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 Torian Resources investors might realise.

Our data indicates that Torian Resources had AU$409k 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 -44% per year, over 5 years , it looks like some investors think it's time to abandon ship, so to speak. The image below shows how Torian Resources's balance sheet has changed over time; if you want to see the precise values, simply click on the image. The image below shows how Torian Resources's balance sheet has changed over time; if you want to see the precise values, simply click on the image.

ASX:TNR Historical Debt, February 19th 2020
ASX:TNR Historical Debt, February 19th 2020

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'd like that just about as much as I like to drink milk and fruit juice mixed together. It only takes a moment for you to check whether we have identified any insider sales recently.

A Different Perspective

Investors in Torian Resources had a tough year, with a total loss of 68%, against a market gain of about 20%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 44% over the last half decade. We realise that Buffett has said investors should 'buy when there is blood on the streets', but we caution that investors should first be sure they are buying a high quality business. It's always interesting to track share price performance over the longer term. But to understand Torian Resources better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 7 warning signs with Torian Resources (at least 4 which are potentially serious) , and understanding them should be part of your investment process.

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 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.