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Some stocks are best avoided. It hits us in the gut when we see fellow investors suffer a loss. For example, we sympathize with anyone who was caught holding MinRex Resources Limited (ASX:MRR) during the five years that saw its share price drop a whopping 87%. And we doubt long term believers are the only worried holders, since the stock price has declined 78% over the last twelve months. Furthermore, it's down 20% in about a quarter. That's not much fun for holders.
While a drop like that is definitely a body blow, money isn't as important as health and happiness.
View our latest analysis for MinRex Resources
With zero revenue generated over twelve months, we don't think that MinRex Resources has proved its business plan yet. This state of affairs suggests that venture capitalists won't provide funds on attractive terms. So it seems that the investors focused more on what could be, than paying attention to the current revenues (or lack thereof). It seems likely some shareholders believe that MinRex Resources will find or develop a valuable new mine before too long.
Companies that lack both meaningful revenue and profits are usually considered high risk. There 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. MinRex Resources has already given some investors a taste of the bitter losses that high risk investing can cause.
When it reported in December 2018 MinRex Resources had minimal cash in excess of all liabilities consider its expenditure: just AU$876k 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 33% per year, over 5 years. You can click on the image below to see (in greater detail) how MinRex Resources's cash levels have changed over time.
In reality it's hard to have much certainty when valuing a business that has neither revenue or profit. Would it bother you if insiders were selling the stock? 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.