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Radius Gold Inc. (CVE:RDU) shareholders might be concerned after seeing the share price drop 22% in the last month. On the other hand, over the last twelve months the stock has delivered rather impressive returns. We're very pleased to report the share price shot up 130% in that time. So it may be that the share price is simply cooling off after a strong rise. The real question is whether the business is trending in the right direction.
Radius Gold didn't have any revenue in the last year, so it's fair to say it doesn't yet have a proven product (or at least not one people are paying for). 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 Radius Gold will find or develop a valuable new mine before too long.
We think companies that have neither significant revenues nor profits are pretty 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 companies like this go on to deliver on their plan, making good money for shareholders, many end in painful losses and eventual de-listing. Radius Gold has already given some investors a taste of the sweet gains that high risk investing can generate, if your timing is right.
When it last reported its balance sheet in March 2019, Radius Gold could boast a strong position, with cash in excess of all liabilities of CA$4.7m. This gives management the flexibility to drive business growth, without worrying too much about cash reserves. And given that the share price has shot up 130% in the last year, its fair to say investors are liking management's vision for the future. You can see in the image below, how Radius 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. However you can take a look at whether insiders have been buying up shares. It's usually a positive if they have, as it may indicate they see value in the stock. You can click here to see if there are insiders buying.
A Different Perspective
It's good to see that Radius Gold has rewarded shareholders with a total shareholder return of 130% in the last twelve months. That's better than the annualised return of 17% over half a decade, implying that the company is doing better recently. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. Before spending more time on Radius Gold it might be wise to click here to see if insiders have been buying or selling shares.
Of course Radius Gold may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
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.