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The Prairie Mining (ASX:PDZ) Share Price Has Gained 134%, So Why Not Pay It Some Attention?

Simply Wall St

The worst result, after buying shares in a company (assuming no leverage), would be if you lose all the money you put in. But when you pick a company that is really flourishing, you can make more than 100%. To wit, the Prairie Mining Limited (ASX:PDZ) share price has flown 134% in the last three years. Most would be happy with that. In more good news, the share price has risen -2.6% in thirty days.

See our latest analysis for Prairie Mining

We don't think Prairie Mining's revenue of AU$676,817 is enough to establish significant demand. 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 Prairie Mining 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. The 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 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 Prairie Mining investors have already had a taste of the sweet taste stocks like this can leave in the mouth, as they gain popularity and attract speculative capital

When it reported in December 2018 Prairie Mining had minimal net cash consider its expenditure: just AU$4.5m to be specific. So if it hasn't remedied the situation already, it will almost certainly have to raise more capital soon. It's a testament to the popularity of the business plan that the share price gained 33% per year, over 3 years, despite the weak balance sheet. The image below shows how Prairie Mining's balance sheet has changed over time; if you want to see the precise values, simply click on the image.

ASX:PDZ Historical Debt, April 13th 2019

Of course, the truth is that it is hard to value companies without much revenue or profit. Given that situation, many of the best investors like to check if insiders have been buying shares. If they are buying a significant amount of shares, that's certainly a good thing. You can click here to see if there are insiders buying.

A Different Perspective

Investors in Prairie Mining had a tough year, with a total loss of 42%, against a market gain of about 11%. 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 1.8% 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 AU 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.