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Investing in stocks comes with the risk that the share price will fall. And there's no doubt that Endurance Gold Corporation (CVE:EDG) stock has had a really bad year. In that relatively short period, the share price has plunged 57%. Longer term shareholders haven't suffered as badly, since the stock is down a comparatively less painful 14% in three years. The falls have accelerated recently, with the share price down 40% in the last three months.
View our latest analysis for Endurance Gold
Endurance Gold 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 that the investors focused more on what could be, than paying attention to the current revenues (or lack thereof). It seems likely some shareholders believe that Endurance Gold 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 such companies go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. It certainly is a dangerous place to invest, as Endurance Gold investors might realise.
When it last reported its balance sheet in December 2018, Endurance Gold could boast a strong position, with cash in excess of all liabilities of CA$3.4m. That allows management to focus on growing the business, and not worry too much about raising capital. But since the share price has dropped 57% in the last year, it seems like the market might have been over-excited previously. You can see in the image below, how Endurance Gold's cash levels have changed over time (click to see the values).
It can be extremely risky to invest in a company that doesn't even have revenue. There's no way to know its value easily. Would it bother you if insiders were selling the stock? It would bother me, that's for sure. It only takes a moment for you to check whether we have identified any insider sales recently.
A Different Perspective
While the broader market gained around 2.5% in the last year, Endurance Gold shareholders lost 57%. However, keep in mind that even the best stocks will sometimes underperform the market over a twelve month period. Unfortunately, last year's performance may indicate unresolved challenges, given that it was worse than the annualised loss of 11% 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.