This month, we saw the Confederation Minerals Ltd. (CVE:CFM) up an impressive 109%. But that doesn't change the fact that the returns over the last half decade have been disappointing. In fact, the share price has declined rather badly, down some 56% in that time. So is the recent increase sufficient to restore confidence in the stock? Not yet. Of course, this could be the start of a turnaround.
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Confederation Minerals 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). 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 Confederation Minerals finds some valuable resources, 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. 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 such companies go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. Confederation Minerals has already given some investors a taste of the bitter losses that high risk investing can cause.
Confederation Minerals had cash in excess of all liabilities of just CA$98k when it last reported (December 2018). So if it hasn't remedied the situation already, it will almost certainly have to raise more capital soon. With that in mind, you can understand why the share price dropped 15% per year, over 5 years. You can click on the image below to see (in greater detail) how Confederation Minerals's cash levels have changed over time.
It can be extremely risky to invest in a company that doesn't even have revenue. There's no way to know its value easily. Given that situation, would you be concerned if it turned out insiders were relentlessly selling stock? It would bother me, that's for sure. It costs nothing but a moment of your time to see if we are picking up on any insider selling.
A Different Perspective
Confederation Minerals's TSR for the year was broadly in line with the market average, at 1.4%. The silver lining is that the share price is up in the short term, which flies in the face of the annualised loss of 15% over the last five years. While 'turnarounds seldom turn' there are green shoots for Confederation Minerals. You might want to assess this data-rich visualization of its earnings, revenue and cash flow.
We will like Confederation Minerals better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, 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.
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