NewRange Gold Corp. (CVE:NRG) shareholders might be concerned after seeing the share price drop 15% in the last quarter. In contrast, the return over three years has been impressive. Indeed, the share price is up a very strong 115% in that time. To some, the recent share price pullback wouldn’t be surprising after such a good run. The fundamental business performance will ultimately dictate whether the top is in, or if this is a stellar buying opportunity.
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With zero revenue generated over twelve months, we don’t think that NewRange Gold has proved its business plan yet. 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 NewRange Gold will find or develop a valuable new mine before too long.
Companies that lack both meaningful revenue and profits are usually considered high risk. 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). NewRange Gold has already given some investors a taste of the sweet gains that high risk investing can generate, if your timing is right.
NewRange Gold had net debt of CA$53,057 when it last reported in January 2019, according to our data. That makes it extremely high risk, in our view. So we’re surprised to see the stock up 29% per year, over 3 years, but we’re happy for holders. It’s clear more than a few people believe in the potential. You can see in the image below, how NewRange Gold’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. 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. Luckily we are in a position to provide you with this free chart of insider buying (and selling).
A Different Perspective
Investors in NewRange Gold had a tough year, with a total loss of 42%, against a market gain of about 1.5%. 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. Unfortunately, last year’s performance may indicate unresolved challenges, given that it was worse than the annualised loss of 9.8% over the last half decade. 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 NewRange Gold 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 like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
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.