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As every investor would know, not every swing hits the sweet spot. But you want to avoid the really big losses like the plague. So consider, for a moment, the misfortune of Aurora Minerals Limited (ASX:ARM) investors who have held the stock for three years as it declined a whopping 86%. That might cause some serious doubts about the merits of the initial decision to buy the stock, to put it mildly. And the ride hasn't got any smoother in recent times over the last year, with the price 57% lower in that time. Shareholders have had an even rougher run lately, with the share price down 13% in the last 90 days.
We really hope anyone holding through that price crash has a diversified portfolio. Even when you lose money, you don't have to lose the lesson.
Check out our latest analysis for Aurora Minerals
With just AU$304,256 worth of revenue in twelve months, we don't think the market considers Aurora Minerals 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 Aurora 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 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 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 Aurora Minerals investors have already had a taste of the bitterness stocks like this can leave in the mouth.
When it last reported its balance sheet in December 2018, Aurora Minerals had cash in excess of all liabilities of AU$1.1m. That's not too bad but management may have to think about raising capital or taking on debt, unless the company is close to breaking even. We'd venture that shareholders are concerned about the need for more capital, because the share price has dropped 48% per year, over 3 years. You can click on the image below to see (in greater detail) how Aurora Minerals's cash levels have changed over time. You can see in the image below, how Aurora Minerals's cash levels have changed over time (click to see the values).