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Easy Come, Easy Go: How Trifecta Gold (CVE:TG) Shareholders Got Unlucky And Saw 71% Of Their Cash Evaporate

Simply Wall St

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It's not a secret that every investor will make bad investments, from time to time. But it should be a priority to avoid stomach churning catastrophes, wherever possible. It must have been painful to be a Trifecta Gold Ltd. (CVE:TG) shareholder over the last year, since the stock price plummeted 71% in that time. That'd be enough to make even the strongest stomachs churn. We wouldn't rush to judgement on Trifecta Gold because we don't have a long term history to look at. The falls have accelerated recently, with the share price down 30% in the last three months.

View our latest analysis for Trifecta Gold

Trifecta Gold 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). We can't help wondering why it's publicly listed so early in its journey. Are venture capitalists not interested? As a result, we think it's unlikely shareholders are paying much attention to current revenue, but rather speculating on growth in the years to come. For example, investors may be hoping that Trifecta 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 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). Some Trifecta Gold investors have already had a taste of the bitterness stocks like this can leave in the mouth.

When it reported in March 2019 Trifecta Gold had minimal cash in excess of all liabilities consider its expenditure: just CA$225k 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. With that in mind, you can understand why the share price dropped 71% in the last year. You can click on the image below to see (in greater detail) how Trifecta Gold's cash levels have changed over time. You can click on the image below to see (in greater detail) how Trifecta Gold's cash levels have changed over time.

TSXV:TG Historical Debt, July 16th 2019

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. 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

While Trifecta Gold shareholders are down 71% for the year, the market itself is up 0.6%. While the aim is to do better than that, it's worth recalling that even great long-term investments sometimes underperform for a year or more. With the stock down 30% 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. If you would like to research Trifecta Gold in more detail then you might want to take a look at whether insiders have been buying or selling shares in the company.

Of course Trifecta Gold may not be the best stock to buy. So you may wish to see this free collection of growth stocks.

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.