Ucore Rare Metals Inc. (CVE:UCU) shareholders will doubtless be very grateful to see the share price up 61% in the last quarter. Meanwhile over the last three years the stock has dropped hard. In that time, the share price dropped 53%. Some might say the recent bounce is to be expected after such a bad drop. After all, could be that the fall was overdone.
With zero revenue generated over twelve months, we don't think that Ucore Rare Metals has proved its business plan yet. This state of affairs suggests that venture capitalists won't provide funds on attractive terms. As a result, we think it's unlikely shareholders are paying much attention to current revenue, but rather speculating on growth in the years to come. It seems likely some shareholders believe that Ucore Rare Metals will find or develop a valuable new mine before too long.
We think companies that have neither significant revenues nor profits are pretty 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 companies like this go on to deliver on their plan, making good money for shareholders, many end in painful losses and eventual de-listing. Ucore Rare Metals has already given some investors a taste of the bitter losses that high risk investing can cause.
Our data indicates that Ucore Rare Metals had CA$4,228,541 more in total liabilities than it had cash, when it last reported in March 2019. That makes it extremely high risk, in our view. But with the share price diving 22% per year, over 3 years, it's probably fair to say that some shareholders no longer believe the company will succeed. You can see in the image below, how Ucore Rare Metals's cash levels have changed over time (click to see the values). You can see in the image below, how Ucore Rare Metals's cash levels have changed over time (click to see the values).
Of course, the truth is that it is hard to value companies without much revenue or profit. Would it bother you if insiders were selling the stock? I'd like that just about as much as I like to drink milk and fruit juice mixed together. It only takes a moment for you to check whether we have identified any insider sales recently.
A Different Perspective
Ucore Rare Metals shareholders are down 16% for the year, but the market itself is up 0.7%. 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 11% 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. You could get a better understanding of Ucore Rare Metals's growth by checking out this more detailed historical graph of earnings, revenue and cash flow.
Of course Ucore Rare Metals may not be the best stock to buy. So you may wish to see this free collection of growth stocks.
Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on CA exchanges.
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