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We’re definitely into long term investing, but some companies are simply bad investments over any time frame. It hits us in the gut when we see fellow investors suffer a loss. Imagine if you held Gespeg Resources Ltd. (CVE:GCR) for half a decade as the share price tanked 79%. And some of the more recent buyers are probably worried, too, with the stock falling 57% in the last year. The falls have accelerated recently, with the share price down 50% in the last three months.
Gespeg Resources hasn’t yet reported any revenue yet, so it’s as much a business idea as an actual business. You have to wonder why venture capitalists aren’t funding it. 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 Gespeg Resources 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. It certainly is a dangerous place to invest, as Gespeg Resources investors might realise.
Gespeg Resources had liabilities exceeding cash by CA$512,428 when it last reported in January 2019, according to our data. That makes it extremely high risk, in our view. But since the share price has dived -27% per year, over 5 years, it looks like some investors think it’s time to abandon ship, so to speak. You can see in the image below, how Gespeg Resources’s cash 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. Would it bother you if insiders were selling the stock? It would bother me, that’s for sure. It only takes a moment for you to check whether we have identified any insider sales recently.
A Different Perspective
Investors in Gespeg Resources had a tough year, with a total loss of 57%, against a market gain of about 0.6%. 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. If you would like to research Gespeg Resources in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
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 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. Thank you for reading.