We’re definitely into long term investing, but some companies are simply bad investments over any time frame. We really hate to see fellow investors lose their hard-earned money. For example, we sympathize with anyone who was caught holding South Pacific Resources Limited (ASX:SPB) during the five years that saw its share price drop a whopping 94%. And we doubt long term believers are the only worried holders, since the stock price has declined 62% over the last twelve months. Furthermore, it’s down 29% in about a quarter. That’s not much fun for holders.
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.
View our latest analysis for South Pacific Resources
With just AU$67,744 worth of revenue in twelve months, we don’t think the market considers South Pacific Resources to have proven its business plan. You have to wonder why venture capitalists aren’t funding it. So it seems that the investors more focused on would could be, than paying attention to the current revenues (or lack thereof). It seems likely some shareholders believe that South Pacific Resources will discover or develop new oil or gas reserves before too long.
We think companies that have neither significant revenues nor profits are pretty high risk. The 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. It certainly is a dangerous place to invest, as South Pacific Resources investors might realise.
Our data indicates that South Pacific Resources had net debt of AU$2,458,027 when it last reported in June 2018. That puts it in the highest risk category, according to our analysis. But since the share price has dived -42% per year, over 5 years, it looks like some investors think it’s time to abandon ship, so to speak. You can click on the image below to see (in greater detail) how South Pacific Resources’s cash and debt levels have changed over time.
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. Would it bother you if insiders were selling the 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.