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Karmin Exploration Inc. (CVE:KAR) shareholders might be concerned after seeing the share price drop 13% in the last quarter. But in three years the returns have been great. In three years the stock price has launched 162% higher: a great result. It's not uncommon to see a share price retrace a bit, after a big gain. The fundamental business performance will ultimately dictate whether the top is in, or if this is a stellar buying opportunity.
Karmin 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 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 Karmin 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. 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 go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. Some Karmin Exploration 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.
Our data indicates that Karmin Exploration had CA$2,511,142 more in total liabilities than it had cash, when it last reported in January 2019. That makes it extremely high risk, in our view. So the fact that the stock is up 38% per year, over 3 years shows that high risks can lead to high rewards, sometimes. Investors must really like its potential. The image below shows how Karmin Exploration's balance sheet has changed over time; if you want to see the precise values, simply click on the image.
Of course, the truth is that it is hard to value companies without much revenue or profit. Given that situation, many of the best investors like to check if insiders have been 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
It's good to see that Karmin Exploration has rewarded shareholders with a total shareholder return of 23% in the last twelve months. Since the one-year TSR is better than the five-year TSR (the latter coming in at 20% per year), it would seem that the stock's performance has improved in recent times. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. Before spending more time on Karmin Exploration it might be wise to click here to see if insiders have been buying or selling shares.
We will like Karmin Exploration better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider 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 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. Thank you for reading.