It hasn’t been the best quarter for NexGen Energy Ltd. (TSE:NXE) shareholders, since the share price has fallen 24% in that time. But that doesn’t change the fact that the returns over the last half decade have been spectacular. In that time, the share price has soared some 304% higher! Arguably, the recent fall is to be expected after such a strong rise. But the real question is whether the business fundamentals can improve over the long term.
NexGen Energy hasn’t yet reported any revenue yet, so it’s as much a business idea as a business. So it seems shareholders are too busy dreaming about the progress to come than dwelling on the current (lack of) revenue. For example, they may be hoping that NexGen Energy finds oil or gas with an exploration program, before it runs out of money.
We think companies that have neither significant revenues nor profits are pretty 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 companies like this go on to deliver on their plan, making good money for shareholders, many end in painful losses and eventual de-listing. Of course, if you time it right, high risk investments like this can really pay off, as NexGen Energy investors might know.
Our data indicates that NexGen Energy had net debt of CA$19,881,784 when it last reported in December 2018. That makes it extremely high risk, in our view. So the fact that the stock is up 32% per year, over 5 years shows that high risks can lead to high rewards, sometimes. Investors must really like its potential. You can see in the image below, how NexGen Energy’s cash and debt levels have changed over time (click to see the values).
In reality it’s hard to have much certainty when valuing a business that has neither revenue or profit. However you can take a look at whether insiders have been buying up shares. It’s often positive if so, assuming the buying is sustained and meaningful. You can click here to see if there are insiders buying.
A Different Perspective
Investors in NexGen Energy had a tough year, with a total loss of 22%, against a market gain of about 4.2%. 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 32%, each year, over five years. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. Before spending more time on NexGen Energy it might be wise to click here to see if insiders have been buying or selling shares.
But note: NexGen Energy may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA exchanges.
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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.