Yahoo Finance The Sipa Resources (ASX:SRI) Share Price Is Down 93% So Some Shareholders Are Rather Upset
Some stocks are best avoided. We don't wish catastrophic capital loss on anyone. Spare a thought for those who held Sipa Resources Limited (ASX:SRI) for five whole years - as the share price tanked 93%. And we doubt long term believers are the only worried holders, since the stock price has declined 43% over the last twelve months. Furthermore, it's down 32% in about a quarter. That's not much fun for holders.
We really feel for shareholders in this scenario. It's a good reminder of the importance of diversification, and it's worth keeping in mind there's more to life than money, anyway.
Check out our latest analysis for Sipa Resources
Sipa Resources recorded just AU$353,471 in revenue over the last twelve months, which isn't really enough for us to consider it to have a proven product. 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, investors may be hoping that Sipa 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. 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). Sipa Resources has already given some investors a taste of the bitter losses that high risk investing can cause.
When it last reported its balance sheet in June 2019, Sipa Resources had cash in excess of all liabilities of AU$3.0m. That's not too bad but management may have to think about raising capital or taking on debt, unless the company is close to breaking even. With the share price down 41% per year, over 5 years , it seems likely that the need for cash is weighing on investors' minds. You can see in the image below, how Sipa Resources's cash levels have changed over time (click to see the values). You can click on the image below to see (in greater detail) how Sipa 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. What if insiders are ditching the stock hand over fist? 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
Sipa Resources shareholders are down 43% for the year, but the market itself is up 21%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 41% over the last half decade. 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. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. For example, we've discovered 5 warning signs for Sipa Resources (2 make us uncomfortable!) that you should be aware of before investing here.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
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.
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