Volatility 101: Should NGEx Resources (TSE:NGQ) Shares Have Dropped 46%?

Simply Wall St

In order to justify the effort of selecting individual stocks, it's worth striving to beat the returns from a market index fund. But even the best stock picker will only win with some selections. So we wouldn't blame long term NGEx Resources Inc. (TSE:NGQ) shareholders for doubting their decision to hold, with the stock down 46% over a half decade. The good news is that the stock is up 4.0% in the last week.

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View our latest analysis for NGEx Resources

NGEx Resources 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). You have to wonder why venture capitalists aren't funding it. 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 NGEx Resources finds some valuable resources, before it runs out of money.

We think companies that have neither significant revenues nor profits are pretty 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.

Our data indicates that NGEx Resources had net debt of CA$4,576,588 when it last reported in December 2018. That puts it in the highest risk category, according to our analysis. But since the share price has dived -12% per year, over 5 years, it looks like some investors think it's time to abandon ship, so to speak. The image below shows how NGEx Resources's balance sheet has changed over time; if you want to see the precise values, simply click on the image.

TSX:NGQ Historical Debt, May 17th 2019

Of course, the truth is that it is hard to value companies without much revenue or profit. Given that situation, would you be concerned if it turned out insiders were relentlessly selling stock? I'd like that just about as much as I like to drink milk and fruit juice mixed together. You can click here to see if there are insiders selling.

What about the Total Shareholder Return (TSR)?

Investors should note that there's a difference between NGEx Resources's total shareholder return (TSR) and its share price change, which we've covered above. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. We note that NGEx Resources's TSR, at -39% is higher than its share price return of -46%. When you consider it hasn't been paying a dividend, this data suggests shareholders have benefitted from a spin-off, or had the opportunity to acquire attractively priced shares in a discounted capital raising.

A Different Perspective

We're pleased to report that NGEx Resources shareholders have received a total shareholder return of 3.0% over one year. That certainly beats the loss of about 9.4% per year over the last half decade. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. Investors who like to make money usually check up on insider purchases, such as the price paid, and total amount bought. You can find out about the insider purchases of NGEx Resources by clicking this link.

NGEx Resources is not the only stock insiders are buying. So take a peek at this free list of growing companies with insider buying.

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.