In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But the main game is to find enough winners to more than offset the losers So we wouldn't blame long term High Peak Royalties Limited (ASX:HPR) shareholders for doubting their decision to hold, with the stock down 50% over a half decade. Furthermore, it's down 37% in about a quarter. That's not much fun for holders. But this could be related to the weak market, which is down 25% in the same period.

Check out our latest analysis for High Peak Royalties

We don't think High Peak Royalties's revenue of AU$647,356 is enough to establish significant demand. 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 High Peak Royalties 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 usually a significant chance that they will need more money for business development, putting them at the mercy of capital markets to raise equity. 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.

High Peak Royalties had liabilities exceeding cash by AU$2.3m when it last reported in December 2019, according to our data. That puts it in the highest risk category, according to our analysis. But with the share price diving 13% per year, over 5 years , it's probably fair to say that some shareholders no longer believe the company will succeed. The image below shows how High Peak Royalties'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. 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 costs nothing but a moment of your time to see if we are picking up on any insider selling.

A Different Perspective

It's good to see that High Peak Royalties has rewarded shareholders with a total shareholder return of 9.1% in the last twelve months. That certainly beats the loss of about 13% per year over the last half decade. This makes us a little wary, but the business might have turned around its fortunes. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Like risks, for instance. Every company has them, and we've spotted 4 warning signs for High Peak Royalties (of which 3 make us uncomfortable!) you should know about.