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Imagine Owning New Era Minerals (CVE:NEM) And Wondering If The 40% Share Price Slide Is Justified

Simply Wall St

Many investors define successful investing as beating the market average over the long term. But if you try your hand at stock picking, your risk returning less than the market. Unfortunately, that's been the case for longer term New Era Minerals Inc. (CVE:NEM) shareholders, since the share price is down 40% in the last three years, falling well short of the market return of around 22%. And more recent buyers are having a tough time too, with a drop of 40% in the last year. The good news is that the stock is up 29% in the last week.

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Check out our latest analysis for New Era Minerals

New Era Minerals hasn't yet reported any revenue yet, so it's as much a business idea as an actual business. You have to wonder why venture capitalists aren't funding it. 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. It seems likely some shareholders believe that New Era Minerals will find or develop a valuable new mine before too long.

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).

New Era Minerals had liabilities exceeding cash by CA$1,335,312 when it last reported in December 2018, according to our data. That makes it extremely high risk, in our view. But since the share price has dived -16% per year, over 3 years, it looks like some investors think it's time to abandon ship, so to speak. You can see in the image below, how New Era Minerals's cash levels have changed over time (click to see the values).

TSXV:NEM Historical Debt, May 27th 2019

In reality it's hard to have much certainty when valuing a business that has neither revenue or profit. 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

Over the last year, New Era Minerals shareholders took a loss of 40%. In contrast the market gained about 1.6%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Shareholders have lost 16% per year over the last three years, so the share price drop has become steeper, over the last year; a potential symptom of as yet unsolved challenges. Although Warren Buffett famously said he likes to 'buy when there is blood on the streets', he also focusses on high quality stocks with solid prospects. Before deciding if you like the current share price, check how New Era Minerals scores on these 3 valuation metrics.

Of course New Era Minerals 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.