Cygnus Gold Limited (ASX:CY5) shareholders will doubtless be very grateful to see the share price up 37% in the last week. It's not great that the stock is down over the last year. But at least it bettered the loss of 15% in its market.
We don't think Cygnus Gold's revenue of AU$208,098 is enough to establish significant demand. 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. For example, investors may be hoping that Cygnus Gold finds some valuable resources, before it runs out of money.
Companies that lack both meaningful revenue and profits are usually considered high risk. 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 reported in December 2019 Cygnus Gold had minimal cash in excess of all liabilities consider its expenditure: just AU$1.4m 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 15% in the last year. You can click on the image below to see (in greater detail) how Cygnus Gold's cash levels have changed over time.
In reality it's hard to have much certainty when valuing a business that has neither revenue or profit. What if insiders are ditching the stock hand over fist? I would feel more nervous about the company if that were so. It only takes a moment for you to check whether we have identified any insider sales recently.
A Different Perspective
Having lost 15% over the year, Cygnus Gold has generated a return within the same ballpark as the broader market. Given that the share price has continued to slide (by 6.8%) in the last three months, it's hard to know when we might see the bottom. Most people would be understandably disheartened by this sort of performance, given the lack of a long term history. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Consider for instance, the ever-present spectre of investment risk. We've identified 6 warning signs with Cygnus Gold (at least 3 which can't be ignored) , and understanding them should be part of your investment process.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU exchanges.
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