Long term investing is the way to go, but that doesn't mean you should hold every stock forever. It hits us in the gut when we see fellow investors suffer a loss. Spare a thought for those who held Kairos Minerals Limited (ASX:KAI) for five whole years - as the share price tanked 91%. And we doubt long term believers are the only worried holders, since the stock price has declined 73% over the last twelve months. More recently, the share price has dropped a further 45% in a month.

We really feel for shareholders in this scenario. It's a good reminder of the importance of diversification, and it's worth keeping in mind there's more to life than money, anyway.

See our latest analysis for Kairos Minerals

We don't think Kairos Minerals's revenue of AU$8,213 is enough to establish significant demand. We can't help wondering why it's publicly listed so early in its journey. Are venture capitalists not interested? So it seems shareholders are too busy dreaming about the progress to come than dwelling on the current (lack of) revenue. For example, investors may be hoping that Kairos Minerals finds some valuable resources, before it runs out of money.

Companies that lack both meaningful revenue and profits are usually considered high risk. 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 go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. Some Kairos Minerals investors have already had a taste of the bitterness stocks like this can leave in the mouth.

Kairos Minerals had cash in excess of all liabilities of just AU$1.1m when it last reported (June 2019). So if it has not already moved to replenish reserves, we think the near-term chances of a capital raising event are pretty high. That probably explains why the share price is down 39% per year, over 5 years . You can click on the image below to see (in greater detail) how Kairos Minerals's cash levels have changed over time. You can click on the image below to see (in greater detail) how Kairos Minerals's cash levels have changed over time.

Of course, the truth is that it is hard to value companies without much revenue or profit. 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 24% in the last year, Kairos Minerals shareholders lost 73%. 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 39% per year over five years. 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. 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. Be aware that Kairos Minerals is showing 7 warning signs in our investment analysis , and 4 of those make us uncomfortable...

If you are like me, then you will not want to miss this free list of growing companies that insiders are buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU exchanges.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.