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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. Imagine if you held Traka Resources Limited (ASX:TKL) for half a decade as the share price tanked 77%. And some of the more recent buyers are probably worried, too, with the stock falling 70% in the last year. Shareholders have had an even rougher run lately, with the share price down 30% in the last 90 days.
Check out our latest analysis for Traka Resources
Traka Resources recorded just AU$19,744 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 Traka 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. 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 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 Traka Resources investors might realise.
Traka Resources had cash in excess of all liabilities of just AU$532k when it last reported (June 2019). So if it hasn't remedied the situation already, it will almost certainly have to raise more capital soon. That probably explains why the share price is down 25% per year, over 5 years . You can see in the image below, how Traka 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 Traka Resources's cash 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? It would bother me, that's for sure. It only takes a moment for you to check whether we have identified any insider sales recently.
A Different Perspective
While the broader market gained around 27% in the last year, Traka Resources shareholders lost 70%. 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. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 24% 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. If you want to research this stock further, the data on insider buying is an obvious place to start. You can click here to see who has been buying shares - and the price they paid.