It hasn't been the best quarter for G2 Goldfields Inc. (CVE:GTWO) shareholders, since the share price has fallen 20% in that time. But that shouldn't obscure the pleasing returns achieved by shareholders over the last three years. In fact, the company's share price bested the return of its market index in that time, posting a gain of 33%.
With just CA$94,095 worth of revenue in twelve months, we don't think the market considers G2 Goldfields to have proven its business plan. So it seems shareholders are too busy dreaming about the progress to come than dwelling on the current (lack of) revenue. For example, investors may be hoping that G2 Goldfields finds some valuable resources, before it runs out of money.
We think companies that have neither significant revenues nor profits are pretty high risk. There was already a significant chance that they would need more money for business development, and indeed they recently put themselves at the mercy of capital markets and raised equity. So the share price itself impacts the value of the shares (as it determines the cost of capital). While some such companies go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt.
When it last reported, G2 Goldfields had minimal cash in excess of all liabilities. So it's prudent that the management team has already moved to replenish reserves through the recent capital raising event. It's a testament to the popularity of the business plan that the share price gained 137% per year, over 3 years , despite the recent dilution. The image below shows how G2 Goldfields's balance sheet has changed over time; if you want to see the precise values, simply click on the image.
It can be extremely risky to invest in a company that doesn't even have revenue. There's no way to know its value easily. However you can take a look at whether insiders have been buying up 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
G2 Goldfields shareholders may not have made money over the last year, but their total loss of 13% isn't as bad as the market loss of around 13%. Longer term investors wouldn't be so upset, since they would have made 10%, each year, over three years. Given the three year returns are better than the return over the last year, it might be that the broader market has weighed on the stock recently. 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. Take risks, for example - G2 Goldfields has 6 warning signs (and 2 which are a bit concerning) we think you should know about.
There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are buying.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA exchanges.
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.
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