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Introducing NxGold (CVE:NXN), The Stock That Tanked 74%

Simply Wall St

Every investor on earth makes bad calls sometimes. But really big losses can really drag down an overall portfolio. So consider, for a moment, the misfortune of NxGold Ltd. (CVE:NXN) investors who have held the stock for three years as it declined a whopping 74%. That would be a disturbing experience. The more recent news is of little comfort, with the share price down 61% in a year. Even worse, it's down 22% in about a month, which isn't fun at all.

Check out our latest analysis for NxGold

NxGold hasn't yet reported any revenue yet, so it's as much a business idea as an actual business. This state of affairs suggests that venture capitalists won't provide funds on attractive terms. 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 NxGold will find or develop a valuable new mine before too long.

As a general rule, if a company doesn't have much revenue, and it loses money, then it is a high risk investment. 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 companies like this go on to deliver on their plan, making good money for shareholders, many end in painful losses and eventual de-listing. NxGold has already given some investors a taste of the bitter losses that high risk investing can cause.

When it last reported its balance sheet in December 2018, NxGold had net cash of CA$3.6m. That's not too bad but management may have to think about raising capital or taking on debt, unless the company is close to breaking even. We'd venture that shareholders are concerned about the need for more capital, because the share price has dropped 36% per year, over 3 years. The image below shows how NxGold's balance sheet has changed over time; if you want to see the precise values, simply click on the image.

TSXV:NXN Historical Debt, April 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 NxGold had a tough year, with a total loss of 61%, against a market gain of about 7.8%. 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. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 14% over the last half decade. 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. Most investors take the time to check the data on insider transactions. You can click here to see if insiders have been buying or selling.

But note: NxGold 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.

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.