The worst result, after buying shares in a company (assuming no leverage), would be if you lose all the money you put in. But when you pick a company that is really flourishing, you can make more than 100%. For example, the Golden Valley Mines And Royalties Ltd. (CVE:GZZ) share price has soared 135% in the last three years. That sort of return is as solid as granite.
Let's take a look at the underlying fundamentals over the longer term, and see if they've been consistent with shareholders returns.
Golden Valley Mines And Royalties recorded just CA$1,330,223 in revenue over the last twelve months, which isn't really enough for us to consider it to have a proven product. So it seems shareholders are too busy dreaming about the progress to come than dwelling on the current (lack of) revenue. For example, investors may be hoping that Golden Valley Mines And Royalties finds some valuable resources, before it runs out of money.
We think companies that have neither significant revenues nor profits are pretty 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 to raise equity. 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). Golden Valley Mines And Royalties has already given some investors a taste of the sweet gains that high risk investing can generate, if your timing is right.
Golden Valley Mines And Royalties had cash in excess of all liabilities of CA$13m when it last reported (June 2021). That's not too bad but management may have to think about raising capital or taking on debt, unless the company is close to breaking even. With the share price up 88% per year, over 3 years , the market is seems hopeful about the potential, despite the cash burn. You can see in the image below, how Golden Valley Mines And Royalties' 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. Given that situation, many of the best investors like to check if insiders have been buying 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
Investors in Golden Valley Mines And Royalties had a tough year, with a total loss of 12%, against a market gain of about 29%. 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. Longer term investors wouldn't be so upset, since they would have made 15%, 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. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Take risks, for example – Golden Valley Mines And Royalties has 2 warning signs we think you should be aware of.
Golden Valley Mines And Royalties is not the only stock insiders are buying. So take a peek at this free list of growing companies with 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.
This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.