Georgian Mining Corporation (LON:GEO) shareholders are doubtless heartened to see the share price bounce 95% in just one week. But that doesn't change the fact that the returns over the last half decade have been stomach churning. Like a ship taking on water, the share price has sunk 89% in that time. While the recent increase might be a green shoot, we're certainly hesitant to rejoice. The important question is if the business itself justifies a higher share price in the long term.

While a drop like that is definitely a body blow, money isn't as important as health and happiness.

See our latest analysis for Georgian Mining

We don't think Georgian Mining's revenue of UK£232,997 is enough to establish significant demand. We can't help wondering why it's publicly listed so early in its journey. Are venture capitalists not interested? 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 Georgian Mining will find or develop a valuable new mine before too long.

Companies that lack both meaningful revenue and profits are usually considered 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 such companies go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. Some Georgian Mining investors have already had a taste of the bitterness stocks like this can leave in the mouth.

When it reported in June 2019 Georgian Mining had minimal cash in excess of all liabilities consider its expenditure: just UK£232k to be specific. So if it hasn't remedied the situation already, it will almost certainly have to raise more capital soon. That probably explains why the share price is down 35% per year, over 5 years . The image below shows how Georgian Mining'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 Georgian Mining's balance sheet has changed over time; if you want to see the precise values, simply click on the image.

Of course, the truth is that it is hard to value companies without much revenue or profit. What if insiders are ditching the stock hand over fist? I would feel more nervous about the company if that were so. You can click here to see if there are insiders selling.

A Different Perspective

Georgian Mining shareholders are down 62% for the year, but the market itself is up 17%. 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 35% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. 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. To that end, you should learn about the 6 warning signs we've spotted with Georgian Mining (including 4 which is are potentially serious) .

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 GB 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.