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Did Changing Sentiment Drive Power Group Projects's (CVE:PGP) Share Price Down A Painful 93%?

Simply Wall St

The art and science of stock market investing requires a tolerance for losing money on some of the shares you buy. But it would be foolish to simply accept every extremely large loss as an inevitable part of the game. So we hope that those who held Power Group Projects Corp. (CVE:PGP) during the last year don't lose the lesson, in addition to the 93% hit to the value of their shares. That'd be a striking reminder about the importance of diversification. Even if you look out three years, the returns are still disappointing, with the share price down (the share price is down 79%) in that time. Shareholders have had an even rougher run lately, with the share price down 37% in the last 90 days.

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.

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See our latest analysis for Power Group Projects

Power Group Projects hasn't yet reported any revenue yet, so it's as much a business idea as an actual business. You have to wonder why venture capitalists aren't funding it. So it seems shareholders are too busy dreaming about the progress to come than dwelling on the current (lack of) revenue. It seems likely some shareholders believe that Power Group Projects will find or develop a valuable new mine before too long.

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 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). Power Group Projects has already given some investors a taste of the bitter losses that high risk investing can cause.

When it reported in October 2018 Power Group Projects had minimal cash in excess of all liabilities consider its expenditure: just CA$1.4m to be specific. So if it has not already moved to replenish reserves, we think the near-term chances of a capital raising event are pretty high. That probably explains why the share price is down 93% in the last year. The image below shows how Power Group Projects's balance sheet has changed over time; if you want to see the precise values, simply click on the image.

TSXV:PGP Historical Debt, May 27th 2019

In reality it's hard to have much certainty when valuing a business that has neither revenue or profit. 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

Investors in Power Group Projects had a tough year, with a total loss of 93%, against a market gain of about 1.6%. 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 31% per year over five years. 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. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.

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.