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Did Changing Sentiment Drive Paramount Gold Nevada's (NYSEMKT:PZG) Share Price Down By 49%?

Simply Wall St

Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. While individual stocks can be big winners, plenty more fail to generate satisfactory returns. That downside risk was realized by Paramount Gold Nevada Corp. (NYSEMKT:PZG) shareholders over the last year, as the share price declined 49%. That contrasts poorly with the market return of 12%. Even if you look out three years, the returns are still disappointing, with the share price down (the share price is down 42%) in that time. It's down 1.2% in the last seven days.

Check out our latest analysis for Paramount Gold Nevada

Paramount Gold Nevada 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). This state of affairs suggests that venture capitalists won't provide funds on attractive terms. 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. It seems likely some shareholders believe that Paramount Gold Nevada will find or develop a valuable new mine before too long.

Companies that lack both meaningful revenue and profits are usually considered 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 companies like this go on to deliver on their plan, making good money for shareholders, many end in painful losses and eventual de-listing.

Paramount Gold Nevada had net debt of US$1,272,593 when it last reported in December 2018, according to our data. That makes it extremely high risk, in our view. But with the share price diving 49% in the last year, it's probably fair to say that some shareholders no longer believe the company will succeed. The image below shows how Paramount Gold Nevada's balance sheet has changed over time; if you want to see the precise values, simply click on the image.

AMEX:PZG Historical Debt, April 24th 2019

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. Would it bother you if insiders were selling the stock? I would feel more nervous about the company if that were so. It costs nothing but a moment of your time to see if we are picking up on any insider selling.

A Different Perspective

Paramount Gold Nevada shareholders are down 49% for the year, but the broader market is up 12%. Of course the long term matters more than the short term, and even great stocks will sometimes have a poor year. Shareholders have lost 17% per year over the last three years, so the share price drop has become steeper, over the last year; a potential symptom of as yet unsolved challenges. Although Warren Buffett famously said he likes to 'buy when there is blood on the streets', he also focusses on high quality stocks with solid prospects. 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 Paramount Gold Nevada by clicking this link.

Paramount Gold Nevada 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 US 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.