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Did You Manage To Avoid Aurcana's (CVE:AUN) 50% Share Price Drop?

Simply Wall St

Investors can approximate the average market return by buying an index fund. But if you buy individual stocks, you can do both better or worse than that. Investors in Aurcana Corporation (CVE:AUN) have tasted that bitter downside in the last year, as the share price dropped 50%. That's well bellow the market return of 14%. Aurcana hasn't been listed for long, so although we're wary of recent listings that perform poorly, it may still prove itself with time. The last week also saw the share price slip down another 6.7%.

See our latest analysis for Aurcana

With just US$258,867 worth of revenue in twelve months, we don't think the market considers Aurcana to have proven its business plan. This state of affairs suggests that venture capitalists won't provide funds on attractive terms. So it seems that the investors focused more on what could be, than paying attention to the current revenues (or lack thereof). It seems likely some shareholders believe that Aurcana 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 usually a significant chance that they will need more money for business development, putting them at the mercy of capital markets. So the share price itself impacts the value of the shares (as it determines the cost of capital). 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 reported in September 2019 Aurcana had minimal cash in excess of all liabilities consider its expenditure: just US$3.6m to be specific. 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 50% in the last year . You can click on the image below to see (in greater detail) how Aurcana's cash levels have changed over time. You can click on the image below to see (in greater detail) how Aurcana's cash levels have changed over time.

TSXV:AUN Historical Debt, January 11th 2020

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? 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

Given that the market gained 14% in the last year, Aurcana shareholders might be miffed that they lost 50%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. With the stock down 1.8% over the last three months, the market doesn't seem to believe that the company has solved all its problems. Given the relatively short history of this stock, we'd remain pretty wary until we see some strong business performance. It is all well and good that insiders have been buying shares, but we suggest you check here to see what price insiders were buying at.

Aurcana is not the only stock that insiders are buying. 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.

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.

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. Thank you for reading.