It's easy to match the overall market return by buying an index fund. While individual stocks can be big winners, plenty more fail to generate satisfactory returns. Unfortunately the Reconnaissance Energy Africa Ltd. (CVE:RECO) share price slid 45% over twelve months. That's well below the market return of 7.1%. Because Reconnaissance Energy Africa hasn't been listed for many years, the market is still learning about how the business performs. And the share price decline continued over the last week, dropping some 24%.
After losing 24% this past week, it's worth investigating the company's fundamentals to see what we can infer from past performance.
With just CA$2,191,864 worth of revenue in twelve months, we don't think the market considers Reconnaissance Energy Africa to have proven its business plan. 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. For example, they may be hoping that Reconnaissance Energy Africa finds fossil fuels with an exploration program, before it runs out of money.
Companies that lack both meaningful revenue and profits are usually considered high risk. You should be aware that there is always a chance that this sort of company will need to issue more shares to raise money to continue pursuing its business plan. While some such companies go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt.
Reconnaissance Energy Africa had cash in excess of all liabilities of just CA$12m when it last reported (December 2021). So if it hasn't remedied the situation already, it will almost certainly have to raise more capital soon. That probably explains why the share price is down 45% in the last year. The image below shows how Reconnaissance Energy Africa's balance sheet has changed over time; if you want to see the precise values, simply click on the image.
Of course, the truth is that it is hard to value companies without much revenue or profit. Would it bother you if insiders were selling the stock? It would bother me, that's for sure. You can click here to see if there are insiders selling.
A Different Perspective
Given that the market gained 7.1% in the last year, Reconnaissance Energy Africa shareholders might be miffed that they lost 45%. While the aim is to do better than that, it's worth recalling that even great long-term investments sometimes underperform for a year or more. The share price decline has continued throughout the most recent three months, down 23%, suggesting an absence of enthusiasm from investors. Given the relatively short history of this stock, we'd remain pretty wary until we see some strong business performance. It's always interesting to track share price performance over the longer term. But to understand Reconnaissance Energy Africa better, we need to consider many other factors. To that end, you should be aware of the 3 warning signs we've spotted with Reconnaissance Energy Africa .
Reconnaissance Energy Africa is not the only stock that insiders are buying. For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA exchanges.
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.