Every investor on earth makes bad calls sometimes. But you want to avoid the really big losses like the plague. So take a moment to sympathize with the long term shareholders of Crater Gold Mining Limited (ASX:CGN), who have seen the share price tank a massive 84% over a three year period. That would certainly shake our confidence in the decision to own the stock. And over the last year the share price fell 32%, so we doubt many shareholders are delighted. The falls have accelerated recently, with the share price down 13% in the last three months. We note that the company has reported results fairly recently; and the market is hardly delighted. You can check out the latest numbers in our company report.
We really feel for shareholders in this scenario. It’s a good reminder of the importance of diversification, and it’s worth keeping in mind there’s more to life than money, anyway.
Crater Gold Mining hasn’t yet reported any revenue yet, so it’s as much a business idea as a business. This state of affairs suggests that venture capitalists won’t provide funds on attractive terms. So it seems that the investors more focused on would could be, than paying attention to the current revenues (or lack thereof). It seems likely some shareholders believe that Crater Gold 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. There is almost always a chance they will need to raise more capital, and their progress – and share price – will dictate how dilutive that is to current holders. 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. Crater Gold Mining has already given some investors a taste of the bitter losses that high risk investing can cause.
Crater Gold Mining had net debt of AU$19,418,658 when it last reported in December 2018, according to our data. That makes it extremely high risk, in our view. But since the share price has dived -45% per year, over 3 years, it looks like some investors think it’s time to abandon ship, so to speak. You can click on the image below to see (in greater detail) how Crater Gold Mining’s cash and debt levels have changed over time.
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? 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.
What about the Total Shareholder Return (TSR)?
We’d be remiss not to mention the difference between Crater Gold Mining’s total shareholder return (TSR) and its share price return. The TSR attempts to capture the value of dividends (as if they were reinvested) and any discounted capital raisings offered to shareholders. We note that Crater Gold Mining’s TSR, at -80% is higher than its share price rise of -84%. When you consider it hasn’t been paying a dividend, this data suggests shareholders may have had the opportunity to acquire attractively priced shares in a discounted capital raising.
A Different Perspective
Crater Gold Mining shareholders are down 32% for the year, but the market itself is up 9.1%. 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. Unfortunately, last year’s performance may indicate unresolved challenges, given that it was worse than the annualised loss of 25% over the last half decade. 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. You could get a better understanding of Crater Gold Mining’s growth by checking out this more detailed historical graph of earnings, revenue and cash flow.
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 AU exchanges.
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If you spot an error that warrants correction, please contact the editor at email@example.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.