Did You Miss NuCoal Resources's (ASX:NCR) 100% Share Price Gain?

NuCoal Resources Limited (ASX:NCR) shareholders might understandably be very concerned that the share price has dropped 38% in the last quarter. But over three years, the returns would have left most investors smiling In the last three years the share price is up, 100%: better than the market.

View our latest analysis for NuCoal Resources

We don't think NuCoal Resources's revenue of AU$23,373 is enough to establish significant demand. 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 NuCoal Resources 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. You should be aware that there is always a chance that this sort of company will need to issue more shares to raise money to continue pursuing its business plan. 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. Of course, if you time it right, high risk investments like this can really pay off, as NuCoal Resources investors might know.

NuCoal Resources has plenty of cash in the bank, with cash in excess of all liabilities sitting at AU$4.1m, when it last reported (June 2019). 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 100% per year, over 3 years , its fair to say investors are liking management's vision for the future. The image below shows how NuCoal Resources's balance sheet has changed over time; if you want to see the precise values, simply click on the image. The image below shows how NuCoal Resources'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. 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 NuCoal Resources had a tough year, with a total loss of 29%, against a market gain of about 20%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 7.8% 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 business. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Consider for instance, the ever-present spectre of investment risk. We've identified 4 warning signs with NuCoal Resources (at least 2 which don't sit too well with us) , 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 AU 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.