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Did Globex Mining Enterprises's (TSE:GMX) Share Price Deserve to Gain 33%?

Simply Wall St

By buying an index fund, you can roughly match the market return with ease. But many of us dare to dream of bigger returns, and build a portfolio ourselves. For example, the Globex Mining Enterprises Inc. (TSE:GMX) share price is up 33% in the last three years, clearly besting than the market return of around 16% (not including dividends).

See our latest analysis for Globex Mining Enterprises

With just CA$3,050,420 worth of revenue in twelve months, we don't think the market considers Globex Mining Enterprises to have proven its business plan. 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 Globex Mining Enterprises 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 companies like this go on to deliver on their plan, making good money for shareholders, many end in painful losses and eventual de-listing.

When it last reported its balance sheet in December 2018, Globex Mining Enterprises could boast a strong position, with net cash of CA$2.3m. This gives management the flexibility to drive business growth, without worrying too much about cash reserves. And with the share price up 10% per year, over 3 years, the market is focussed on that blue sky potential. You can see in the image below, how Globex Mining Enterprises's cash and debt levels have changed over time (click to see the values).

TSX:GMX Historical Debt, April 12th 2019

In reality it's hard to have much certainty when valuing a business that has neither revenue or profit. Given that situation, many of the best investors like to check if insiders have been buying shares. It's often positive if so, assuming the buying is sustained and meaningful. Luckily we are in a position to provide you with this free chart of insider buying (and selling).

A Different Perspective

Globex Mining Enterprises shareholders are down 15% for the year, but the market itself is up 7.6%. 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. On the bright side, long term shareholders have made money, with a gain of 3.0% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. 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 Globex Mining Enterprises by clicking this link.

Globex Mining Enterprises 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.