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Did Changing Sentiment Drive DXI Energy's (TSE:DXI) Share Price Down A Disastrous 96%?

Long term investing works well, but it doesn't always work for each individual stock. We really hate to see fellow investors lose their hard-earned money. Spare a thought for those who held DXI Energy Inc. (TSE:DXI) for five whole years - as the share price tanked 96%. And some of the more recent buyers are probably worried, too, with the stock falling 40% in the last year. Furthermore, it's down 25% 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.

View our latest analysis for DXI Energy

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DXI Energy recorded just CA$1,044,000 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. For example, they may be hoping that DXI Energy finds fossil fuels with an exploration program, before it runs out of money.

We think companies that have neither significant revenues nor profits are pretty high risk. 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). DXI Energy has already given some investors a taste of the bitter losses that high risk investing can cause.

Our data indicates that DXI Energy had CA$9.0m more in total liabilities than it had cash, when it last reported in September 2019. That makes it extremely high risk, in our view. But since the share price has dived -49% per year, over 5 years , it looks like some investors think it's time to abandon ship, so to speak. You can click on the image below to see (in greater detail) how DXI Energy's cash levels have changed over time. The image below shows how DXI Energy's balance sheet has changed over time; if you want to see the precise values, simply click on the image.

TSX:DXI Historical Debt, January 23rd 2020
TSX:DXI Historical Debt, January 23rd 2020

In reality it's hard to have much certainty when valuing a business that has neither 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.

A Different Perspective

While the broader market gained around 14% in the last year, DXI Energy shareholders lost 40%. 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 49% 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 7 warning signs for DXI Energy (5 are significant!) that you should be aware of before investing here.

DXI Energy is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.

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 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.