Investing in stocks comes with the risk that the share price will fall. Unfortunately, shareholders of Horizon Minerals Limited (ASX:HRZ) have suffered share price declines over the last year. In that relatively short period, the share price has plunged 52%. Notably, shareholders had a tough run over the longer term, too, with a drop of 48% in the last three years. Furthermore, it’s down 35% in about a quarter. That’s not much fun for holders. But this could be related to the weak market, which is down 23% in the same period.
With just AU$54,727 worth of revenue in twelve months, we don’t think the market considers Horizon Minerals to have proven its business plan. 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 Horizon Minerals finds some valuable resources, before it runs out of money.
Companies that lack both meaningful revenue and profits are usually considered high risk. We can see that they needed to raise more capital, and took that step recently despite the fact that it would have been dilutive to current holders. While some such companies do very well over the long term, others become hyped up by promoters before eventually falling back down to earth, and going bankrupt (or being recapitalized). It certainly is a dangerous place to invest, as Horizon Minerals investors might realise.
When it last reported, Horizon Minerals had minimal cash in excess of all liabilities. So it’s prudent that the management team has already moved to replenish reserves through the recent capital raising event. The cash situation might not explain why the share price is down 52% in the last year. You can see in the image below, how Horizon Minerals’s cash levels have changed over time (click to see the values).
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. What if insiders are ditching the stock hand over fist? 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.
A Different Perspective
We regret to report that Horizon Minerals shareholders are down 52% for the year. Unfortunately, that’s worse than the broader market decline of 10%. Having said that, it’s inevitable that some stocks will be oversold in a falling market. The key is to keep your eyes on the fundamental developments. Longer term investors wouldn’t be so upset, since they would have made 2.5%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. It’s always interesting to track share price performance over the longer term. But to understand Horizon Minerals better, we need to consider many other factors. Like risks, for instance. Every company has them, and we’ve spotted 5 warning signs for Horizon Minerals (of which 2 are a bit concerning!) you should know about.
Horizon Minerals is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider 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 [email protected] 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.