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Cullen Resources Limited (ASX:CUL) shareholders will doubtless be very grateful to see the share price up 78% in the last quarter. But spare a thought for the long term holders, who have held the stock as it bled value over the last five years. Five years have seen the share price descend precipitously, down a full 93%. While the recent increase might be a green shoot, we're certainly hesitant to rejoice. The million dollar question is whether the company can justify a long term recovery.
We really hope anyone holding through that price crash has a diversified portfolio. Even when you lose money, you don't have to lose the lesson.
Check out our latest analysis for Cullen Resources
We don't think Cullen Resources's revenue of AU$23,726 is enough to establish significant demand. We can't help wondering why it's publicly listed so early in its journey. Are venture capitalists not interested? 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 Cullen 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. 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. Cullen Resources has already given some investors a taste of the bitter losses that high risk investing can cause.
Cullen Resources had cash in excess of all liabilities of just AU$591k when it last reported (December 2018). So if it has not already moved to replenish reserves, we think the near-term chances of a capital raising event are pretty high. With that in mind, you can understand why the share price dropped 42% per year, over 5 years. The image below shows how Cullen Resources's balance sheet has changed over time; if you want to see the precise values, simply click on the image. The image below shows how Cullen Resources's balance sheet has changed over time; if you want to see the precise values, simply click on the image.
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'd like that just about as much as I like to drink milk and fruit juice mixed together. It costs nothing but a moment of your time to see if we are picking up on any insider selling.