Did Changing Sentiment Drive Granada Gold Mine's (CVE:GGM) Share Price Down A Painful 86%?

As an investor, mistakes are inevitable. But you have a problem if you face massive losses more than once in a while. So consider, for a moment, the misfortune of Granada Gold Mine Inc. (CVE:GGM) investors who have held the stock for three years as it declined a whopping 86%. That'd be enough to cause even the strongest minds some disquiet. The more recent news is of little comfort, with the share price down 39% in a year.

While a drop like that is definitely a body blow, money isn't as important as health and happiness.

Check out our latest analysis for Granada Gold Mine

With just CA$206,970 worth of revenue in twelve months, we don't think the market considers Granada Gold Mine to have proven its business plan. We can't help wondering why it's publicly listed so early in its journey. Are venture capitalists not interested? 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. For example, investors may be hoping that Granada Gold Mine finds some valuable resources, before it runs out of money.

Companies that lack both meaningful revenue and profits are usually considered high risk. 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 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). Granada Gold Mine has already given some investors a taste of the bitter losses that high risk investing can cause.

Granada Gold Mine had liabilities exceeding cash by CA$5,955,772 when it last reported in March 2019, according to our data. That makes it extremely high risk, in our view. But with the share price diving 48% per year, over 3 years, it's probably fair to say that some shareholders no longer believe the company will succeed. The image below shows how Granada Gold Mine's balance sheet has changed over time; if you want to see the precise values, simply click on the image.

In reality it's hard to have much certainty when valuing a business that has neither revenue or profit. 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. You can click here to see if there are insiders selling.

A Different Perspective

While the broader market gained around 0.4% in the last year, Granada Gold Mine shareholders lost 39%. 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 27% per year over five years. We realise that Buffett has said investors should 'buy when there is blood on the streets', but we caution that investors should first be sure they are buying a high quality businesses. 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, you might find a fantastic investment by looking elsewhere. So take a peek at this free list of companies we expect will 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 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.