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How Important Was Sentiment In Driving New Pacific Metals's (CVE:NUAG) Fantastic 2618% Share Price Gain?

·4 min read

New Pacific Metals Corp. (CVE:NUAG) shareholders have seen the share price descend 20% over the month. But that doesn't change the fact that the returns over the last half decade have been spectacular. In that time, the share price has soared some 2618% higher! Arguably, the recent fall is to be expected after such a strong rise. Only time will tell if there is still too much optimism currently reflected in the share price.

It really delights us to see such great share price performance for investors.

Check out our latest analysis for New Pacific Metals

With just CA$3,804,370 worth of revenue in twelve months, we don't think the market considers New Pacific Metals to have proven its business plan. 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 New Pacific Metals finds some valuable resources, before it runs out of money.

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 go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. New Pacific Metals has already given some investors a taste of the sweet gains that high risk investing can generate, if your timing is right.

New Pacific Metals had cash in excess of all liabilities of CA$41m when it last reported (December 2019). While that's nothing to panic about, there is some possibility the company will raise more capital, especially if profits are not imminent. Given the share price has increased by a solid 13% per year, over 5 years , its fair to say investors remain excited about the future, despite the potential need for cash. You can see in the image below, how New Pacific Metals's cash levels have changed over time (click to see the values). You can see in the image below, how New Pacific Metals's cash levels have changed over time (click to see the values).

TSXV:NUAG Historical Debt, March 10th 2020
TSXV:NUAG Historical Debt, March 10th 2020

Of course, the truth is that it is hard to value companies without much revenue or profit. However you can take a look at whether insiders have been buying up shares. It's often positive if so, assuming the buying is sustained and meaningful. Luckily we are in a position to provide you with this free chart of insider buying (and selling).

A Different Perspective

We're pleased to report that New Pacific Metals shareholders have received a total shareholder return of 105% over one year. That gain is better than the annual TSR over five years, which is 94%. Therefore it seems like sentiment around the company has been positive lately. Given the share price momentum remains strong, it might be worth taking a closer look at the stock, lest you miss an opportunity. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Even so, be aware that New Pacific Metals is showing 6 warning signs in our investment analysis , and 1 of those is a bit unpleasant...

But note: New Pacific Metals may not be the best stock to buy. So take a peek at this free list of interesting companies with past earnings growth (and further growth forecast).

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA exchanges.

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.

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. Thank you for reading.