Passive investing in an index fund is a good way to ensure your own returns roughly match the overall market. Active investors aim to buy stocks that vastly outperform the market - but in the process, they risk under-performance. Investors in Norwest Minerals Limited (ASX:NWM) have tasted that bitter downside in the last year, as the share price dropped 25%. That's well below the market decline of 12%. Norwest Minerals hasn't been listed for long, so although we're wary of recent listings that perform poorly, it may still prove itself with time.

View our latest analysis for Norwest Minerals

With just AU$18,089 worth of revenue in twelve months, we don't think the market considers Norwest Minerals to have proven its business plan. 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. For example, investors may be hoping that Norwest Minerals finds some valuable resources, before it runs out of money.

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 go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt.

When it reported in December 2019 Norwest Minerals had minimal cash in excess of all liabilities consider its expenditure: just AU$1.9m to be specific. So if it hasn't remedied the situation already, it will almost certainly have to raise more capital soon. With that in mind, you can understand why the share price dropped 25% in the last year. You can click on the image below to see (in greater detail) how Norwest Minerals's cash levels have changed over time.

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. What if insiders are ditching the stock hand over fist? I would feel more nervous about the company if that were so. It costs nothing but a moment of your time to see if we are picking up on any insider selling.

What about the Total Shareholder Return (TSR)?

Investors should note that there's a difference between Norwest Minerals's total shareholder return (TSR) and its share price change, which we've covered above. The TSR is a return calculation that accounts for the value of cash dividends (assuming that any dividend received was reinvested) and the calculated value of any discounted capital raisings and spin-offs. Norwest Minerals hasn't been paying dividends, but its TSR of -18% exceeds its share price return of -25%, implying it has either spun-off a business, or raised capital at a discount; thereby providing additional value to shareholders.

A Different Perspective

We doubt Norwest Minerals shareholders are happy with the loss of 18% over twelve months. That falls short of the market, which lost 12%. There's no doubt that's a disappointment, but the stock may well have fared better in a stronger market. With the stock down 5.7% over the last three months, the market doesn't seem to believe that the company has solved all its problems. Basically, most investors should be wary of buying into a poor-performing stock, unless the business itself has clearly improved. I find it very interesting to look at share price over the long term as a proxy for business performance. But to truly gain insight, we need to consider other information, too. Even so, be aware that Norwest Minerals is showing 5 warning signs in our investment analysis , and 2 of those are significant...

There are plenty of other companies that have insiders buying up shares. You probably do not want to miss this free list of growing companies that insiders are buying.

Please note, the market returns quoted in this article reflect the market weighted average returns of stocks that currently trade on AU exchanges.

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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. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned. Thank you for reading.