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Long term investing works well, but it doesn't always work for each individual stock. We don't wish catastrophic capital loss on anyone. Imagine if you held Sunset Pacific Petroleum Ltd (CVE:SPK) for half a decade as the share price tanked 77%. It's up 17% in the last seven days.
Check out our latest analysis for Sunset Pacific Petroleum
With zero revenue generated over twelve months, we don't think that Sunset Pacific Petroleum has proved its business plan yet. You have to wonder why venture capitalists aren't funding it. So it seems that the investors focused more on what could be, than paying attention to the current revenues (or lack thereof). It seems likely some shareholders believe that Sunset Pacific Petroleum will discover or develop fossil fuel before too long.
As a general rule, if a company doesn't have much revenue, and it loses money, then it is a high risk investment. There is almost always a chance they will need to raise more capital, and their progress - and share price - will dictate how dilutive that is to current holders. 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). Some Sunset Pacific Petroleum investors have already had a taste of the bitterness stocks like this can leave in the mouth.
Our data indicates that Sunset Pacific Petroleum had CA$1,397,716 more in total liabilities than it had cash, when it last reported in September 2018. That makes it extremely high risk, in our view. But with the share price diving 25% per year, over 5 years, it's probably fair to say that some shareholders no longer believe the company will succeed. You can click on the image below to see (in greater detail) how Sunset Pacific Petroleum's cash levels have changed over time.
In reality it's hard to have much certainty when valuing a business that has neither revenue or profit. Given that situation, would you be concerned if it turned out insiders were relentlessly selling 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.
A Different Perspective
It's good to see that Sunset Pacific Petroleum has rewarded shareholders with a total shareholder return of 17% in the last twelve months. Notably the five-year annualised TSR loss of 25% per year compares very unfavourably with the recent share price performance. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. You might want to assess this data-rich visualization of its earnings, revenue and cash flow.