For many, the main point of investing in the stock market is to achieve spectacular returns. While not every stock performs well, when investors win, they can win big. For example, the Canada Cobalt Works Inc. (CVE:CCW) share price is up a whopping 4150% in the last half decade, a handsome return for long term holders. And this is just one example of the epic gains achieved by some long term investors. Also pleasing for shareholders was the 49% gain in the last three months.
It really delights us to see such great share price performance for investors.
With just CA$176,991 worth of revenue in twelve months, we don’t think the market considers Canada Cobalt Works to have proven its business plan. So it seems shareholders are too busy dreaming about the progress to come than dwelling on the current (lack of) revenue. It seems likely some shareholders believe that Canada Cobalt Works 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 such companies go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. Canada Cobalt Works has already given some investors a taste of the sweet gains that high risk investing can generate, if your timing is right.
Our data indicates that Canada Cobalt Works had CA$619k more in total liabilities than it had cash, when it last reported in June 2019. That makes it extremely high risk, in our view. So we’re surprised to see the stock up 9.5% per year, over 5 years , but we’re happy for holders. Investors must really like its potential. The image below shows how Canada Cobalt Works’s balance sheet has changed over time; if you want to see the precise values, simply click on the image. Look at the image below to see how Canada Cobalt Works’s cash levels have changed over time.
In reality it’s hard to have much certainty when valuing a business that has neither revenue or profit. One thing you can do is check if company insiders are buying shares. If they are buying a significant amount of shares, that’s certainly a good thing. You can click here to see if there are insiders buying.
A Different Perspective
While the broader market gained around 12% in the last year, Canada Cobalt Works shareholders lost 29%. 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 112%, 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. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.
Of course Canada Cobalt Works 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.
If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.
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. Thank you for reading.