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When we invest, we're generally looking for stocks that outperform the market average. And the truth is, you can make significant gains if you buy good quality businesses at the right price. For example, long term Cache Exploration Inc. (CVE:CAY) shareholders have enjoyed a 100% share price rise over the last half decade, well in excess of the market return of around 0.9% (not including dividends). However, more recent returns haven't been as impressive as that, with the stock returning just 11% in the last year.
Cache Exploration 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). So it seems that the investors focused more on what could be, than paying attention to the current revenues (or lack thereof). For example, investors may be hoping that Cache Exploration finds some valuable resources, before it runs out of money.
We think companies that have neither significant revenues nor profits are pretty 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 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). Cache Exploration has already given some investors a taste of the sweet gains that high risk investing can generate, if your timing is right.
Our data indicates that Cache Exploration had CA$649,868 more in total liabilities than it had cash, when it last reported in March 2019. That puts it in the highest risk category, according to our analysis. So we're surprised to see the stock up 15% per year, over 5 years, but we're happy for holders. It's clear more than a few people believe in the potential. You can see in the image below, how Cache Exploration's cash levels have changed over time (click to see the values). The image below shows how Cache Exploration's balance sheet has changed over time; if you want to see the precise values, simply click on the image.
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. One thing you can do is check if company insiders are buying shares. If they are buying a significant amount of shares, that's certainly a good thing. You can click here to see if there are insiders buying.
A Different Perspective
It's good to see that Cache Exploration has rewarded shareholders with a total shareholder return of 11% in the last twelve months. Having said that, the five-year TSR of 15% a year, is even better. If you would like to research Cache Exploration in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.
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 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 firstname.lastname@example.org. 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.