Investing in stocks inevitably means buying into some companies that perform poorly. Long term Lucapa Diamond Company Limited (ASX:LOM) shareholders know that all too well, since the share price is down considerably over three years. Regrettably, they have had to cope with a 54% drop in the share price over that period. The more recent news is of little comfort, with the share price down 38% in a year. Furthermore, it's down 22% in about a quarter. That's not much fun for holders.

Check out our latest analysis for Lucapa Diamond

Lucapa Diamond didn't have any revenue in the last year, so it's fair to say it doesn't yet have a proven product (or at least not one people are paying for). You have to wonder why venture capitalists aren't funding it. So it seems that the investors more focused on would could be, than paying attention to the current revenues (or lack thereof). It seems likely some shareholders believe that Lucapa Diamond 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. 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 such companies go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. Lucapa Diamond has already given some investors a taste of the bitter losses that high risk investing can cause.

Lucapa Diamond had net debt of US$22,539,373 when it last reported in December 2018, according to our data. That puts it in the highest risk category, according to our analysis. But since the share price has dived -23% per year, over 3 years, it looks like some investors think it's time to abandon ship, so to speak. The image below shows how Lucapa Diamond's balance sheet has changed over time; if you want to see the precise values, simply click on the image.

Of course, the truth is that it is hard to value companies without much revenue or profit. What if insiders are ditching the stock hand over fist? I would feel more nervous about the company if that were so. It only takes a moment for you to check whether we have identified any insider sales recently.

A Different Perspective

Investors in Lucapa Diamond had a tough year, with a total loss of 38%, against a market gain of about 11%. 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 7.8% per year over five years. We realise that Buffett has said investors should 'buy when there is blood on the streets', but we caution that investors should first be sure they are buying a high quality businesses. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.