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Long term investing is the way to go, but that doesn’t mean you should hold every stock forever. We really hate to see fellow investors lose their hard-earned money. For example, we sympathize with anyone who was caught holding Castle Minerals Limited (ASX:CDT) during the five years that saw its share price drop a whopping 80%. We also note that the stock has performed poorly over the last year, with the share price down 67%. Shareholders have had an even rougher run lately, with the share price down 30% in the last 90 days. This could be related to the recent financial results – you can catch up on the most recent data by reading our company report.
Check out our latest analysis for Castle Minerals
With zero revenue generated over twelve months, we Castle Minerals has proved its business plan yet. 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. It seems likely some shareholders believe that Castle Minerals will find or develop a valuable new mine 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. 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 such companies go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. Some Castle Minerals investors have already had a taste of the bitterness stocks like this can leave in the mouth.
When it reported in December 2018 Castle Minerals had minimal net cash consider its expenditure: just AU$260k to be specific. 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 28% per year, over 5 years. You can click on the image below to see (in greater detail) how Castle Minerals’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. Given that situation, would you be concerned if it turned out insiders were relentlessly selling stock? It would bother me, that’s for sure. It costs nothing but a moment of your time to see if we are picking up on any insider selling.