Introducing Labrador Gold (CVE:LAB), The Stock That Zoomed 150% In The Last Three Years

Simply Wall St

The most you can lose on any stock (assuming you don't use leverage) is 100% of your money. But in contrast you can make much more than 100% if the company does well. To wit, the Labrador Gold Corp. (CVE:LAB) share price has flown 150% in the last three years. That sort of return is as solid as granite. But it's down 9.1% in the last week. But note that the broader market is down 1.2% since last week, and this may have impacted Labrador Gold's share price.

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View our latest analysis for Labrador Gold

Labrador Gold didn't have any revenue in the last year, so it's fair to say it doesn't yet have a proven product (or at least not one people are paying for). So it seems that the investors focused more on what could be, than paying attention to the current revenues (or lack thereof). It seems likely some shareholders believe that Labrador Gold 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 Labrador Gold 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.

When it reported in December 2018 Labrador Gold had minimal cash in excess of all liabilities consider its expenditure: just CA$373k to be specific. So if it has not already moved to replenish reserves, we think the near-term chances of a capital raising event are pretty high. It's a testament to the popularity of the business plan that the share price gained 36% per year, over 3 years, despite the weak balance sheet. You can click on the image below to see (in greater detail) how Labrador Gold's cash levels have changed over time.

TSXV:LAB Historical Debt, May 25th 2019

In reality it's hard to have much certainty when valuing a business that has neither revenue or profit. However you can take a look at whether insiders have been buying up shares. It's usually a positive if they have, as it may indicate they see value in the stock. Luckily we are in a position to provide you with this free chart of insider buying (and selling).

A Different Perspective

Labrador Gold shareholders are down 26% for the year, but the market itself is up 1.5%. 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. On the bright side, long term shareholders have made money, with a gain of 11% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. If you would like to research Labrador Gold in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.

Of course Labrador Gold may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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.