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It's not possible to invest over long periods without making some bad investments. But you have a problem if you face massive losses more than once in a while. So spare a thought for the long term shareholders of China Nonferrous Gold Limited (LON:CNG); the share price is down a whopping 92% in the last three years. That'd be enough to cause even the strongest minds some disquiet. And over the last year the share price fell 79%, so we doubt many shareholders are delighted. The falls have accelerated recently, with the share price down 41% in the last three months.
While a drop like that is definitely a body blow, money isn't as important as health and happiness.
Check out our latest analysis for China Nonferrous Gold
We don't think China Nonferrous Gold's revenue of US$291,000 is enough to establish significant demand. We can't help wondering why it's publicly listed so early in its journey. Are venture capitalists not interested? 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. For example, investors may be hoping that China Nonferrous Gold 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. There 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 go on to make revenue, profits, and generate value, others get hyped up by hopeful naifs before eventually going bankrupt. China Nonferrous Gold has already given some investors a taste of the bitter losses that high risk investing can cause.
China Nonferrous Gold had net debt of US$402,333,000 when it last reported in June 2018, according to our data. That makes it extremely high risk, in our view. But since the share price has dived -56% per year, over 3 years, it looks like some investors think it's time to abandon ship, so to speak. The image below shows how China Nonferrous Gold's balance sheet has changed over time; if you want to see the precise values, simply click on the image.
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? 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.