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Imagine Owning Visible Gold Mines (CVE:VGD) And Trying To Stomach The 89% Share Price Drop

Simply Wall St

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Some stocks are best avoided. It hits us in the gut when we see fellow investors suffer a loss. Spare a thought for those who held Visible Gold Mines Inc. (CVE:VGD) for five whole years - as the share price tanked 89%. It's down 11% in the last seven days.

While a drop like that is definitely a body blow, money isn't as important as health and happiness.

See our latest analysis for Visible Gold Mines

With zero revenue generated over twelve months, we don't think that Visible Gold Mines has proved its business plan yet. You have to wonder why venture capitalists aren't funding it. 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 Visible Gold Mines 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 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 companies like this go on to deliver on their plan, making good money for shareholders, many end in painful losses and eventual de-listing. It certainly is a dangerous place to invest, as Visible Gold Mines investors might realise.

Our data indicates that Visible Gold Mines had CA$524,012 more in total liabilities than it had cash, when it last reported in January 2019. That puts it in the highest risk category, according to our analysis. But with the share price diving 35% per year, over 5 years, 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 Visible Gold Mines's cash levels have changed over time.

TSXV:VGD Historical Debt, June 26th 2019

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. What if insiders are ditching the stock hand over fist? 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

It's good to see that Visible Gold Mines has rewarded shareholders with a total shareholder return of 14% in the last twelve months. There's no doubt those recent returns are much better than the TSR loss of 35% per year over five years. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. Before spending more time on Visible Gold Mines it might be wise to click here to see if insiders have been buying or selling shares.

If you are like me, then you will not want to miss this free list of growing companies that insiders are 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.