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Imagine Owning Naikun Wind Energy Group (CVE:NKW) And Trying To Stomach The 73% Share Price Drop

Simply Wall St

Some stocks are best avoided. It hits us in the gut when we see fellow investors suffer a loss. Imagine if you held Naikun Wind Energy Group Inc. (CVE:NKW) for half a decade as the share price tanked 73%.

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View our latest analysis for Naikun Wind Energy Group

With zero revenue generated over twelve months, we don't think that Naikun Wind Energy Group has proved its business plan yet. You have to wonder why venture capitalists aren't funding it. So it seems shareholders are too busy dreaming about the progress to come than dwelling on the current (lack of) revenue. Investors will be hoping that Naikun Wind Energy Group 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. You should be aware that there is always a chance that this sort of company will need to issue more shares to raise money to continue pursuing its business plan. While some companies like this go on to deliver on their plan, making good money for shareholders, many end in painful losses and eventual de-listing. Some Naikun Wind Energy Group investors have already had a taste of the bitterness stocks like this can leave in the mouth.

Our data indicates that Naikun Wind Energy Group had CA$1,390,933 more in total liabilities than it had cash, when it last reported in March 2019. That makes it extremely high risk, in our view. But with the share price diving 23% per year, over 5 years, it's probably fair to say that some shareholders no longer believe the company will succeed. You can see in the image below, how Naikun Wind Energy Group's cash levels have changed over time (click to see the values).

TSXV:NKW Historical Debt, May 27th 2019

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 only takes a moment for you to check whether we have identified any insider sales recently.

A Different Perspective

While the broader market gained around 1.6% in the last year, Naikun Wind Energy Group shareholders lost 19%. Even the share prices of good stocks drop sometimes, but we want to see improvements in the fundamental metrics of a business, before getting too interested. However, the loss over the last year isn't as bad as the 23% per annum loss investors have suffered over the last half decade. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.

For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

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.