Long term investing can be life changing when you buy and hold the truly great businesses. And highest quality companies can see their share prices grow by huge amounts. For example, the NexGen Energy Ltd. (TSE:NXE) share price is up a whopping 422% in the last half decade, a handsome return for long term holders. And this is just one example of the epic gains achieved by some long term investors. And in the last week the share price has popped 8.1%.

Check out our latest analysis for NexGen Energy

NexGen Energy hasn’t yet reported any revenue yet, so it’s as much a business idea as a business. So it seems that the investors more focused on would could be, than paying attention to the current revenues (or lack thereof). For example, they may be hoping that NexGen Energy finds oil or gas with an exploration program, before it runs out of money.

As a general rule, if a company doesn’t have much revenue, and it loses money, then it is a high risk investment. 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. Some NexGen Energy investors have already had a taste of the sweet taste stocks like this can leave in the mouth, as they gain popularity and attract speculative capital

Our data indicates that NexGen Energy had net debt of CA$19,881,784 when it last reported in December 2018. That puts it in the highest risk category, according to our analysis. So the fact that the stock is up 39% per year, over 5 years shows that high risks can lead to high rewards, sometimes. Investors must really like its potential. You can see in the image below, how NexGen Energy’s cash and debt 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. Given that situation, many of the best investors like to check if insiders have been buying shares. If they are buying a significant amount of shares, that’s certainly a good thing. You can click here to see if there are insiders buying.

A Different Perspective

NexGen Energy shareholders are down 15% for the year, but the market itself is up 3.3%. 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. Longer term investors wouldn’t be so upset, since they would have made 39%, each year, over five years. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. If you would like to research NexGen Energy in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.

If you would prefer to check out another company — one with potentially superior financials — then do not miss this free list of companies that have proven they can grow earnings.

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 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. Thank you for reading.