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Golden Queen Mining Co. Ltd. (TSE:GQM) shareholders should be happy to see the share price up 25% in the last month. But that doesn't change the fact that the returns over the last three years have been stomach churning. The share price has sunk like a leaky ship, down 98% in that time. So it's about time shareholders saw some gains. The thing to think about is whether the business has really turned around.
While a drop like that is definitely a body blow, money isn't as important as health and happiness.
Golden Queen Mining isn't currently profitable, so most analysts would look to revenue growth to get an idea of how fast the underlying business is growing. Generally speaking, companies without profits are expected to grow revenue every year, and at a good clip. That's because fast revenue growth can be easily extrapolated to forecast profits, often of considerable size.
In the last three years, Golden Queen Mining saw its revenue grow by 40% per year, compound. That's well above most other pre-profit companies. So why has the share priced crashed 75% per year, in the same time? You'd want to take a close look at the balance sheet, as well as the losses. Ultimately, revenue growth doesn't amount to much if the business can't scale well. Unless the balance sheet is strong, the company might have to raise capital.
You can see how revenue and earnings have changed over time in the image below, (click on the chart to see cashflow).
Take a more thorough look at Golden Queen Mining's financial health with this free report on its balance sheet.
A Different Perspective
While the broader market gained around 1.2% in the last year, Golden Queen Mining shareholders lost 88%. 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. Regrettably, last year's performance caps off a bad run, with the shareholders facing a total loss of 56% 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. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.
For those who like to find winning investments this free list of growing companies with recent insider purchasing, could be just the ticket.
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 email@example.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.