Yahoo Finance Imagine Owning Minco Capital (CVE:MMM) While The Price Tanked 69%
Statistically speaking, long term investing is a profitable endeavour. But that doesn't mean long term investors can avoid big losses. Zooming in on an example, the Minco Capital Corp. (CVE:MMM) share price dropped 69% in the last half decade. That's an unpleasant experience for long term holders. And we doubt long term believers are the only worried holders, since the stock price has declined 21% over the last twelve months. Even worse, it's down 12% in about a month, which isn't fun at all.
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See our latest analysis for Minco Capital
Minco Capital didn't have any revenue in the last year, so it's fair to say it doesn't yet have a proven product (or at least not one people are paying for). This state of affairs suggests that venture capitalists won't provide funds on attractive terms. 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. Investors will be hoping that Minco Capital can make progress and gain better traction for the business, before it runs low on cash.
As a general rule, if a company doesn't have much revenue, and it loses money, then it is a high risk investment. 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). It certainly is a dangerous place to invest, as Minco Capital investors might realise.
Minco Capital has plenty of cash in the bank, with cash in excess of all liabilities sitting at CA$11m, when it last reported (December 2018). This gives management the flexibility to drive business growth, without worrying too much about cash reserves. But since the share price has dropped 21% per year, over 5 years, it seems like the market might have been over-excited previously. You can see in the image below, how Minco Capital'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. 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.
A Different Perspective
Minco Capital shareholders are down 21% for the year, but the market itself is up 1.7%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 21% over the last half decade. 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 could get a better understanding of Minco Capital's growth by checking out this more detailed historical graph of earnings, revenue and cash flow.
Of course Minco Capital 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 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.
