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Imagine Owning Blue Moon Zinc (CVE:MOON) While The Price Tanked 60%

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Simply Wall St
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Blue Moon Zinc Corp. (CVE:MOON) shareholders will doubtless be very grateful to see the share price up 50% in the last week. But that doesn't change the fact that the returns over the last year have been disappointing. Specifically, the stock price slipped by 60% in that time. It's not that amazing to see a bounce after a drop like that. You could argue that the sell-off was too severe.

Check out our latest analysis for Blue Moon Zinc

With zero revenue generated over twelve months, we don't think that Blue Moon Zinc has proved its business plan yet. This state of affairs suggests that venture capitalists won't provide funds on attractive terms. 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 Blue Moon Zinc 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. 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 companies like this go on to deliver on their plan, making good money for shareholders, many end in painful losses and eventual de-listing. Blue Moon Zinc has already given some investors a taste of the bitter losses that high risk investing can cause.

Blue Moon Zinc had liabilities exceeding cash by CA$565,772 when it last reported in March 2019, according to our data. That makes it extremely high risk, in our view. But with the share price diving 60% in the last year, it's probably fair to say that some shareholders no longer believe the company will succeed. You can click on the image below to see (in greater detail) how Blue Moon Zinc's cash levels have changed over time. You can see in the image below, how Blue Moon Zinc's cash levels have changed over time (click to see the values).

TSXV:MOON Historical Debt, July 25th 2019
TSXV:MOON Historical Debt, July 25th 2019

In reality it's hard to have much certainty when valuing a business that has neither revenue or profit. What if insiders are ditching the stock hand over fist? 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

Investors in Blue Moon Zinc had a tough year, with a total loss of 60%, against a market gain of about 1.7%. 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 5.6% per year over five years. Generally speaking long term share price weakness can be a bad sign, though contrarian investors might want to research the stock in hope of a turnaround. You could get a better understanding of Blue Moon Zinc's growth by checking out this more detailed historical graph of earnings, revenue and cash flow.

We will like Blue Moon Zinc 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 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.