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Did You Manage To Avoid HPQ-Silicon Resources's (CVE:HPQ) Devastating 70% Share Price Drop?

Simply Wall St

As every investor would know, not every swing hits the sweet spot. But you want to avoid the really big losses like the plague. So consider, for a moment, the misfortune of HPQ-Silicon Resources Inc. (CVE:HPQ) investors who have held the stock for three years as it declined a whopping 70%. That would certainly shake our confidence in the decision to own the stock. The falls have accelerated recently, with the share price down 11% in the last three months.

Check out our latest analysis for HPQ-Silicon Resources

HPQ-Silicon Resources 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. So it seems that the investors focused more on what could be, than paying attention to the current revenues (or lack thereof). For example, investors may be hoping that HPQ-Silicon Resources finds some valuable resources, before it runs out of money.

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). HPQ-Silicon Resources has already given some investors a taste of the bitter losses that high risk investing can cause.

Our data indicates that HPQ-Silicon Resources had CA$3,784,913 more in total liabilities than it had cash, when it last reported in March 2019. That makes it extremely high risk, in our view. But since the share price has dived -33% per year, over 3 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 HPQ-Silicon Resources's cash levels have changed over time. You can see in the image below, how HPQ-Silicon Resources's cash levels have changed over time (click to see the values).

TSXV:HPQ Historical Debt, July 26th 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. Given that situation, would you be concerned if it turned out insiders were relentlessly selling stock? I would feel more nervous about the company if that were so. You can click here to see if there are insiders selling.

A Different Perspective

Investors in HPQ-Silicon Resources had a tough year, with a total loss of 5.6%, against a market gain of about 0.9%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. On the bright side, long term shareholders have made money, with a gain of 7.2% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.

But note: HPQ-Silicon Resources may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

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.