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Did Changing Sentiment Drive Korab Resources's (ASX:KOR) Share Price Down A Painful 92%?

Simply Wall St
·4 min read

Some stocks are best avoided. We really hate to see fellow investors lose their hard-earned money. Anyone who held Korab Resources Limited (ASX:KOR) for five years would be nursing their metaphorical wounds since the share price dropped 92% in that time. And we doubt long term believers are the only worried holders, since the stock price has declined 89% over the last twelve months. Shareholders have had an even rougher run lately, with the share price down 60% in the last 90 days.

While a drop like that is definitely a body blow, money isn't as important as health and happiness.

View our latest analysis for Korab Resources

With just AU$51,258 worth of revenue in twelve months, we don't think the market considers Korab Resources to have proven its business plan. This state of affairs suggests that venture capitalists won't provide funds on attractive terms. So it seems shareholders are too busy dreaming about the progress to come than dwelling on the current (lack of) revenue. For example, investors may be hoping that Korab Resources finds some valuable resources, before it runs out of money.

We think companies that have neither significant revenues nor profits are pretty high risk. We can see that they needed to raise more capital, and took that step recently despite the fact that it would have been dilutive to current holders. 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 Korab Resources investors might realise.

Korab Resources had liabilities exceeding cash when it last reported, according to our data. That made it extremely high risk, in our view. But with the share price diving 40% per year, over 5 years , it's probably fair to say that some shareholders no longer believe the company will succeed or they are worried about dilution with the recent cash injection. The image below shows how Korab Resources's balance sheet has changed over time; if you want to see the precise values, simply click on the image.

ASX:KOR Historical Debt April 15th 2020
ASX:KOR Historical Debt April 15th 2020

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. 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

While the broader market lost about 9.7% in the twelve months, Korab Resources shareholders did even worse, losing 89%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 40% 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. It's always interesting to track share price performance over the longer term. But to understand Korab Resources better, we need to consider many other factors. Even so, be aware that Korab Resources is showing 6 warning signs in our investment analysis , and 3 of those shouldn't be ignored...

If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.

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.