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Did You Manage To Avoid Arcus Development Group's (CVE:ADG) 30% Share Price Drop?

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Arcus Development Group Inc. (CVE:ADG) shareholders are doubtless heartened to see the share price bounce 40% in just one week. But that doesn't change the fact that the returns over the last five years have been less than pleasing. In fact, the share price is down 30%, which falls well short of the return you could get by buying an index fund.

Check out our latest analysis for Arcus Development Group

Arcus Development Group hasn't yet reported any revenue yet, so it's as much a business idea as an actual business. You have to wonder why venture capitalists aren't funding it. 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 Arcus Development Group will find or develop a valuable new mine before too long.

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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.

Arcus Development Group had cash in excess of all liabilities of just CA$74k when it last reported (January 2019). 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 6.9% per year, over 5 years. You can click on the image below to see (in greater detail) how Arcus Development Group's cash levels have changed over time.

TSXV:ADG Historical Debt, June 22nd 2019
TSXV:ADG Historical Debt, June 22nd 2019

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? 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

Arcus Development Group shareholders are down 30% for the year, but the market itself is up 0.8%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 6.9% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. You might want to assess this data-rich visualization of its earnings, revenue and cash flow.

We will like Arcus Development Group better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA exchanges.

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.

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. Thank you for reading.