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While it may not be enough for some shareholders, we think it is good to see the Neo Lithium Corp. (CVE:NLC) share price up 26% in a single quarter. But that doesn't change the reality of under-performance over the last twelve months. In fact, the price has declined 40% in a year, falling short of the returns you could get by investing in an index fund.
With zero revenue generated over twelve months, we don't think that Neo Lithium has proved its business plan yet. We can't help wondering why it's publicly listed so early in its journey. Are venture capitalists not interested? 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 Neo Lithium 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 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).
Neo Lithium has plenty of cash in the bank, with net cash sitting at CA$43m, when it last reported (December 2018). That allows management to focus on growing the business, and not worry too much about raising capital. But since the share price has dropped 40% in the last year, it seems like the market might have been over-excited previously. You can see in the image below, how Neo Lithium's cash levels have changed over time (click to see the values).
In reality it's hard to have much certainty when valuing a business that has neither revenue or profit. Would it bother you if insiders were selling the stock? 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
While Neo Lithium shareholders are down 40% for the year, the market itself is up 4.6%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. It's great to see a nice little 26% rebound in the last three months. Let's just hope this isn't the widely-feared 'dead cat bounce' (which would indicate further declines to come). It is all well and good that insiders have been buying shares, but we suggest you check here to see what price insiders were buying at.
Neo Lithium is not the only stock that insiders are buying. 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.