Buying shares in the best businesses can build meaningful wealth for you and your family. And highest quality companies can see their share prices grow by huge amounts. To wit, the Canada Cobalt Works Inc. (CVE:CCW) share price has soared 4150% over five years. This just goes to show the value creation that some businesses can achieve. Also pleasing for shareholders was the 49% gain in the last three months.
We love happy stories like this one. The company should be really proud of that performance!
With just CA$176,991 worth of revenue in twelve months, we don't think the market considers Canada Cobalt Works to have proven its business plan. 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 Canada Cobalt Works 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 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 Canada Cobalt Works investors have already had a taste of the sweet taste stocks like this can leave in the mouth, as they gain popularity and attract speculative capital.
Canada Cobalt Works had liabilities exceeding cash by CA$619k when it last reported in June 2019, according to our data. That puts it in the highest risk category, according to our analysis. So the fact that the stock is up 9.5% per year, over 5 years shows that high risks can lead to high rewards, sometimes. Investors must really like its potential. You can see in the image below, how Canada Cobalt Works's cash levels have changed over time (click to see the values). You can click on the image below to see (in greater detail) how Canada Cobalt Works's cash levels have changed over time.
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. It's usually a positive if they have, as it may indicate they see value in the stock. You can click here to see if there are insiders buying.
A Different Perspective
Investors in Canada Cobalt Works had a tough year, with a total loss of 29%, against a market gain of about 12%. 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 112% per year over half a decade. If the fundamental data continues to indicate long term sustainable growth, the current sell-off could be an opportunity worth considering. Before spending more time on Canada Cobalt Works it might be wise to click here to see if insiders have been buying or selling shares.
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.
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 email@example.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.