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Volatility 101: Should Cobra Venture (CVE:CBV) Shares Have Dropped 48%?

Simply Wall St

This week we saw the Cobra Venture Corporation (CVE:CBV) share price climb by 14%. But if you look at the last five years the returns have not been good. In fact, the share price is down 48%, which falls well short of the return you could get by buying an index fund.

View our latest analysis for Cobra Venture

Cobra Venture recorded just CA$1,153,557 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. So it seems shareholders are too busy dreaming about the progress to come than dwelling on the current (lack of) revenue. For example, they may be hoping that Cobra Venture finds fossil fuels with an exploration program, 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 companies like this go on to deliver on their plan, making good money for shareholders, many end in painful losses and eventual de-listing.

When it last reported its balance sheet in August 2019, Cobra Venture could boast a strong position, with cash in excess of all liabilities of CA$1.7m. This gives management the flexibility to drive business growth, without worrying too much about cash reserves. But since the share price has dropped 12% per year, over 5 years , it seems like the market might have been over-excited previously. The image below shows how Cobra Venture'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 Cobra Venture's cash levels have changed over time.

TSXV:CBV Historical Debt, December 19th 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. 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

Cobra Venture shareholders are down 5.9% for the year, but the market itself is up 19%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. However, the loss over the last year isn't as bad as the 12% per annum loss investors have suffered over the last half decade. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. You could get a better understanding of Cobra Venture's growth by checking out this more detailed historical graph of earnings, revenue and cash flow.

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.

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.