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I-Minerals Inc. (CVE:IMA) shareholders should be happy to see the share price up 28% in the last month. But that is small recompense for the exasperating returns over three years. Tragically, the share price declined 62% in that time. So it is really good to see an improvement. While many would remain nervous, there could be further gains if the business can put its best foot forward.

Check out our latest analysis for I-Minerals

With zero revenue generated over twelve months, we don't think that I-Minerals has proved its business plan yet. 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. For example, investors may be hoping that I-Minerals 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 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 such companies do very well over the long term, others become hyped up by promoters before eventually falling back down to earth, and going bankrupt (or being recapitalized). It certainly is a dangerous place to invest, as I-Minerals investors might realise.

I-Minerals had liabilities exceeding cash by US$22,706,088 when it last reported in January 2019, according to our data. That puts it in the highest risk category, according to our analysis. But since the share price has dived -27% per year, over 3 years, it looks like some investors think it's time to abandon ship, so to speak. The image below shows how I-Minerals'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. Would it bother you if insiders were selling the stock? It would bother me, that's for sure. It only takes a moment for you to check whether we have identified any insider sales recently.

A Different Perspective

I-Minerals shareholders are down 48% for the year, but the market itself is up 1.4%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 15% over the last half decade. 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 businesses. Before spending more time on I-Minerals it might be wise to click here to see if insiders have been buying or selling shares.

For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.

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.