If you are building a properly diversified stock portfolio, the chances are some of your picks will perform badly. Long term Sparton Resources Inc. (CVE:SRI) shareholders know that all too well, since the share price is down considerably over three years. So they might be feeling emotional about the 64% share price collapse, in that time. The more recent news is of little comfort, with the share price down 60% in a year. More recently, the share price has dropped a further 33% in a month.
Sparton Resources recorded just CA$29,789 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 shareholders are too busy dreaming about the progress to come than dwelling on the current (lack of) revenue. It seems likely some shareholders believe that Sparton Resources will discover or develop fossil fuel before too long.
Companies that lack both meaningful revenue and profits are usually considered 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 go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. It certainly is a dangerous place to invest, as Sparton Resources investors might realise.
Sparton Resources had liabilities exceeding cash by CA$651k when it last reported in September 2019, according to our data. That makes it extremely high risk, in our view. But since the share price has dived -29% per year, over 3 years , it looks like some investors think it's time to abandon ship, so to speak. The image below shows how Sparton Resources's balance sheet has changed over time; if you want to see the precise values, simply click on the image. You can click on the image below to see (in greater detail) how Sparton 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. Given that situation, would you be concerned if it turned out insiders were relentlessly selling 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 gained around 5.7% in the last year, Sparton Resources shareholders lost 60%. 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 5.9% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. It's always interesting to track share price performance over the longer term. But to understand Sparton Resources better, we need to consider many other factors. Consider for instance, the ever-present spectre of investment risk. We've identified 6 warning signs with Sparton Resources (at least 4 which make us uncomfortable) , and understanding them should be part of your investment process.
Of course Sparton Resources 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.
If you spot an error that warrants correction, please contact the editor at email@example.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.
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