The Great Western Exploration (ASX:GTE) Share Price Is Down 87% So Some Shareholders Are Rather Upset
We're definitely into long term investing, but some companies are simply bad investments over any time frame. It hits us in the gut when we see fellow investors suffer a loss. For example, we sympathize with anyone who was caught holding Great Western Exploration Limited (ASX:GTE) 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 60% over the last twelve months. Unfortunately the share price momentum is still quite negative, with prices down 33% in thirty days. But this could be related to poor market conditions -- stocks are down 21% in the same time.
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 Great Western Exploration
With just AU$9,896 worth of revenue in twelve months, we don't think the market considers Great Western Exploration to have proven its business plan. You have to wonder why venture capitalists aren't funding it. As a result, we think it's unlikely shareholders are paying much attention to current revenue, but rather speculating on growth in the years to come. For example, investors may be hoping that Great Western Exploration 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 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). Some Great Western Exploration investors have already had a taste of the bitterness stocks like this can leave in the mouth.
Our data indicates that Great Western Exploration had AU$277k more in total liabilities than it had cash, when it last reported in December 2019. That puts it in the highest risk category, according to our analysis. But with the share price diving 33% 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 Great Western Exploration'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.
What about the Total Shareholder Return (TSR)?
Investors should note that there's a difference between Great Western Exploration's total shareholder return (TSR) and its share price change, which we've covered above. Arguably the TSR is a more complete return calculation because it accounts for the value of dividends (as if they were reinvested), along with the hypothetical value of any discounted capital that have been offered to shareholders. Great Western Exploration hasn't been paying dividends, but its TSR of -85% exceeds its share price return of -87%, implying it has either spun-off a business, or raised capital at a discount; thereby providing additional value to shareholders.
A Different Perspective
We regret to report that Great Western Exploration shareholders are down 56% for the year. Unfortunately, that's worse than the broader market decline of 15%. However, it could simply be that the share price has been impacted by broader market jitters. It might be worth keeping an eye on the fundamentals, in case there's a good opportunity. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 32% per year over five years. We realise that Baron Rothschild 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 business. It's always interesting to track share price performance over the longer term. But to understand Great Western Exploration better, we need to consider many other factors. For instance, we've identified 6 warning signs for Great Western Exploration (3 can't be ignored) that you should be aware of.
Of course Great Western Exploration may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
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.
