Did Changing Sentiment Drive Paramount Gold Nevada's (NYSEMKT:PZG) Share Price Down A Worrying 55%?

It is a pleasure to report that the Paramount Gold Nevada Corp. (NYSEMKT:PZG) is up 39% in the last quarter. Meanwhile over the last three years the stock has dropped hard. Regrettably, the share price slid 55% in that period. So the improvement may be a real relief to some. After all, could be that the fall was overdone.

See our latest analysis for Paramount Gold Nevada

With just US$153,628 worth of revenue in twelve months, we don't think the market considers Paramount Gold Nevada to have proven its business plan. This state of affairs suggests that venture capitalists won't provide funds on attractive terms. 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 Paramount Gold Nevada 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 companies like this go on to deliver on their plan, making good money for shareholders, many end in painful losses and eventual de-listing. Some Paramount Gold Nevada investors have already had a taste of the bitterness stocks like this can leave in the mouth.

Our data indicates that Paramount Gold Nevada had US$4.3m more in total liabilities than it had cash, when it last reported in December 2019. That puts it in the highest risk category, according to our analysis. But with the share price diving 24% per year, over 3 years , it's probably fair to say that some shareholders no longer believe the company will succeed. You can click on the image below to see (in greater detail) how Paramount Gold Nevada's cash levels have changed over time. The image below shows how Paramount Gold Nevada's balance sheet has changed over time; if you want to see the precise values, simply click on the image.

In reality it's hard to have much certainty when valuing a business that has neither revenue or profit. What if insiders are ditching the stock hand over fist? 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

The last twelve months weren't great for Paramount Gold Nevada shares, which cost holders 4.7%, while the market was up about 23%. Of course the long term matters more than the short term, and even great stocks will sometimes have a poor year. However, the loss over the last year isn't as bad as the 24% per annum loss investors have suffered over the last three years. We would want clear information suggesting the company will grow, before taking the view that the share price will stabilize. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Consider for instance, the ever-present spectre of investment risk. We've identified 7 warning signs with Paramount Gold Nevada (at least 3 which are a bit concerning) , and understanding them should be part of your investment process.

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 US exchanges.

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.

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. Thank you for reading.