The Canada Rare Earth (CVE:LL) Share Price Has Gained 117%, So Why Not Pay It Some Attention?

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It might be of some concern to shareholders to see the Canada Rare Earth Corp. (CVE:LL) share price down 19% in the last month. But in three years the returns have been great. In fact, the share price is up a full 117% compared to three years ago. To some, the recent share price pullback wouldn't be surprising after such a good run. The thing to consider is whether the underlying business is doing well enough to support the current price.

View our latest analysis for Canada Rare Earth

We don't think Canada Rare Earth's revenue of CA$796,662 is enough to establish significant demand. 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. It seems likely some shareholders believe that Canada Rare Earth 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 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). Canada Rare Earth 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 Rare Earth had CA$1,076,747 more in total liabilities than it had cash, when it last reported in December 2018. That puts it in the highest risk category, according to our analysis. So we're surprised to see the stock up 29% per year, over 3 years, but we're happy for holders. Investors must really like its potential. You can click on the image below to see (in greater detail) how Canada Rare Earth'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. Given that situation, many of the best investors like to check if insiders have been buying 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 Canada Rare Earth had a tough year, with a total loss of 13%, against a market gain of about 0.3%. 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 13%, 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 Canada Rare Earth it might be wise to click here to see if insiders have been buying or selling shares.

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.