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Minaurum Gold Inc. (CVE:MGG) shareholders might be concerned after seeing the share price drop 17% in the last quarter. But that doesn't undermine the fantastic longer term performance (measured over five years). Indeed, the share price is up a whopping 321% in that time. So it might be that some shareholders are taking profits after good performance. But the real question is whether the business fundamentals can improve over the long term.
With zero revenue generated over twelve months, we don't think that Minaurum Gold has proved its business plan yet. 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. It seems likely some shareholders believe that Minaurum Gold will find or develop a valuable new mine before too long.
As a general rule, if a company doesn't have much revenue, and it loses money, then it is a high risk investment. The 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. Of course, if you time it right, high risk investments like this can really pay off, as Minaurum Gold investors might know.
Minaurum Gold had net cash of CA$8.3m when it last reported (January 2019). While that's nothing to panic about, there is some possibility the company will raise more capital, especially if profits are not imminent. With the share price up 33% per year, over 5 years, the market is seems hopeful about the potential, despite the cash burn. The image below shows how Minaurum Gold's balance sheet has changed over time; if you want to see the precise values, simply click on the image.
Of course, the truth is that it is hard to value companies without much revenue or profit. However you can take a look at whether insiders have been buying up shares. It's usually a positive if they have, as it may indicate they see value in the stock. Luckily we are in a position to provide you with this free chart of insider buying (and selling).
A Different Perspective
While the broader market gained around 8.4% in the last year, Minaurum Gold shareholders lost 25%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Longer term investors wouldn't be so upset, since they would have made 33%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. Before spending more time on Minaurum Gold it might be wise to click here to see if insiders have been buying or selling shares.
We will like Minaurum Gold 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 email@example.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.