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Is Empire Metals's (CVE:EP) 278% Share Price Increase Well Justified?

Simply Wall St

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Empire Metals Corp. (CVE:EP) shareholders might be concerned after seeing the share price drop 15% in the last month. But in stark contrast, the returns over the last half decade have impressed. We think most investors would be happy with the 278% return, over that period. We think it's more important to dwell on the long term returns than the short term returns. Ultimately business performance will determine whether the stock price continues the positive long term trend.

See our latest analysis for Empire Metals

Empire Metals 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). 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 Empire Metals finds some valuable resources, before it runs out of money.

As a general rule, if a company doesn't have much revenue, and it loses money, then it is a high risk investment. 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 companies like this go on to deliver on their plan, making good money for shareholders, many end in painful losses and eventual de-listing. Empire Metals 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 Empire Metals had net debt of CA$1,271,745 when it last reported in September 2018. That puts it in the highest risk category, according to our analysis. So the fact that the stock is up 30% per year, over 5 years shows that high risks can lead to high rewards, sometimes. Investors must really like its potential. The image below shows how Empire Metals's balance sheet has changed over time; if you want to see the precise values, simply click on the image.

TSXV:EP Historical Debt, April 29th 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. If they are buying a significant amount of shares, that's certainly a good thing. Luckily we are in a position to provide you with this free chart of insider buying (and selling).

A Different Perspective

Empire Metals shareholders are down 2.9% for the year, but the market itself is up 6.3%. 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 30% per year over half a decade. It could be that the recent sell-off is an opportunity, so it may be worth checking the fundamental data for signs of a long term growth trend. 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 Empire Metals by clicking this link.

There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are 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.