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Did Changing Sentiment Drive Hannan Metals's (CVE:HAN) Share Price Down A Worrying 57%?

We think intelligent long term investing is the way to go. But along the way some stocks are going to perform badly. To wit, the Hannan Metals Ltd. (CVE:HAN) share price managed to fall 57% over five long years. We certainly feel for shareholders who bought near the top. And it's not just long term holders hurting, because the stock is down 48% in the last year.

See our latest analysis for Hannan Metals

Hannan Metals didn't have any revenue in the last year, so it's fair to say it doesn't yet have a proven product (or at least not one people are paying for). This state of affairs suggests that venture capitalists won't provide funds on attractive terms. 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 Hannan Metals will find or develop a valuable new mine before too long.

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We think companies that have neither significant revenues nor profits are pretty high risk. There is almost always a chance they will need to raise more capital, and their progress - and share price - will dictate how dilutive that is to current holders. While some such companies go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. Hannan Metals has already given some investors a taste of the bitter losses that high risk investing can cause.

Our data indicates that Hannan Metals had CA$417,928 more in total liabilities than it had cash, when it last reported in February 2019. That puts it in the highest risk category, according to our analysis. But since the share price has dived -16% 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 Hannan Metals's cash levels have changed over time. You can see in the image below, how Hannan Metals's cash levels have changed over time (click to see the values).

TSXV:HAN Historical Debt, August 1st 2019
TSXV:HAN Historical Debt, August 1st 2019

It can be extremely risky to invest in a company that doesn't even have revenue. There's no way to know its value easily. 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

While the broader market gained around 0.6% in the last year, Hannan Metals shareholders lost 48%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 16% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. Before spending more time on Hannan Metals it might be wise to click here to see if insiders have been buying or selling shares.

Of course Hannan Metals may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA exchanges.

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.

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. Thank you for reading.