As every investor would know, not every swing hits the sweet spot. But really big losses can really drag down an overall portfolio. So consider, for a moment, the misfortune of Granada Gold Mine Inc. (CVE:GGM) investors who have held the stock for three years as it declined a whopping 85%. That would be a disturbing experience. And over the last year the share price fell 37%, so we doubt many shareholders are delighted. It's down 4.3% in the last seven days.
We really feel for shareholders in this scenario. It's a good reminder of the importance of diversification, and it's worth keeping in mind there's more to life than money, anyway.
We don't think Granada Gold Mine's revenue of CA$206,970 is enough to establish significant demand. We can't help wondering why it's publicly listed so early in its journey. Are venture capitalists not interested? So it seems shareholders are too busy dreaming about the progress to come than dwelling on the current (lack of) revenue. It seems likely some shareholders believe that Granada Gold Mine will find or develop a valuable new mine before too long.
We think companies that have neither significant revenues nor profits are pretty high risk. 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 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 Granada Gold Mine investors have already had a taste of the bitterness stocks like this can leave in the mouth.
Our data indicates that Granada Gold Mine had CA$5,955,772 more in total liabilities than it had cash, when it last reported in March 2019. That makes it extremely high risk, in our view. But since the share price has dived -47% per year, over 3 years, it looks like some investors think it's time to abandon ship, so to speak. The image below shows how Granada Gold Mine's balance sheet has changed over time; if you want to see the precise values, simply click on the image. The image below shows how Granada Gold Mine's balance sheet has changed over time; if you want to see the precise values, simply click on the image.
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. Would it bother you if insiders were selling the stock? I would feel more nervous about the company if that were so. It only takes a moment for you to check whether we have identified any insider sales recently.
A Different Perspective
Investors in Granada Gold Mine had a tough year, with a total loss of 37%, against a market gain of about 0.5%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 26% per year over five years. We realise that Buffett has said investors should 'buy when there is blood on the streets', but we caution that investors should first be sure they are buying a high quality businesses. Before spending more time on Granada Gold Mine it might be wise to click here to see if insiders have been buying or selling shares.
If you like to buy stocks alongside management, then you might just love this free list of companies. (Hint: insiders have been buying them).
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA exchanges.
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If you spot an error that warrants correction, please contact the editor at firstname.lastname@example.org. 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.