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When you buy shares in a company, there is always a risk that the price drops to zero. But if you pick the right business to buy shares in, you can make more than you can lose. For example, the Precipitate Gold Corp. (CVE:PRG) share price has soared 120% return in just a single year. It's also up 22% in about a month. In contrast, the longer term returns are negative, since the share price is 62% lower than it was three years ago.
Precipitate Gold 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). 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 Precipitate 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. 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 companies like this go on to deliver on their plan, making good money for shareholders, many end in painful losses and eventual de-listing. Precipitate Gold has already given some investors a taste of the sweet gains that high risk investing can generate, if your timing is right.
Precipitate Gold had cash in excess of all liabilities of just CA$521k when it last reported (February 2019). So if it hasn't remedied the situation already, it will almost certainly have to raise more capital soon. Given how low on cash the it got, investors must really like its potential for the share price to be up 120% in the last year. You can click on the image below to see (in greater detail) how Precipitate Gold's cash levels have changed over time. You can click on the image below to see (in greater detail) how Precipitate Gold's cash levels have changed over time.
Of course, the truth is that it is hard to value companies without much revenue or profit. Given that situation, many of the best investors like to check if insiders have been buying shares. If they are buying a significant amount of shares, that's certainly a good thing. Luckily we are in a position to provide you with this free chart of insider buying (and selling).
A Different Perspective
It's nice to see that Precipitate Gold shareholders have received a total shareholder return of 120% over the last year. There's no doubt those recent returns are much better than the TSR loss of 9.4% per year over five years. We generally put more weight on the long term performance over the short term, but the recent improvement could hint at a (positive) inflection point within the business. You could get a better understanding of Precipitate Gold's growth by checking out this more detailed historical graph of earnings, revenue and cash flow.
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.
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.