Generally speaking long term investing is the way to go. But no-one is immune from buying too high. Zooming in on an example, the KFG Resources Ltd. (CVE:KFG) share price dropped 70% in the last half decade. That's an unpleasant experience for long term holders. It's down 25% in the last seven days.
KFG Resources recorded just US$1,253,066 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? 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 KFG Resources will discover or develop fossil fuel 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 companies like this go on to deliver on their plan, making good money for shareholders, many end in painful losses and eventual de-listing. Some KFG Resources investors have already had a taste of the bitterness stocks like this can leave in the mouth.
Our data indicates that KFG Resources had US$227k more in total liabilities than it had cash, when it last reported in October 2019. That makes it extremely high risk, in our view. But since the share price has dived -21% 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 KFG Resources's cash levels have changed over time (click to see the values). You can click on the image below to see (in greater detail) how KFG 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. What if insiders are ditching the stock hand over fist? 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 KFG Resources had a tough year, with a total loss of 14%, against a market gain of about 13%. 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 21% per annum loss investors have suffered over the last half decade. We'd need to see some sustained improvements in the key metrics before we could muster much enthusiasm. 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. For example, we've discovered 5 warning signs for KFG Resources (3 don't sit too well with us!) that you should be aware of before investing here.
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 CA exchanges.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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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