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It is doubtless a positive to see that the African Gold Group, Inc. (CVE:AGG) share price has gained some 149% in the last three months. But that doesn't change the fact that the returns over the last half decade have been stomach churning. Like a ship taking on water, the share price has sunk 72% in that time. The recent bounce might mean the long decline is over, but we are not confident. The million dollar question is whether the company can justify a long term recovery.
African Gold Group hasn't yet reported any revenue yet, so it's as much a business idea as an actual business. You have to wonder why venture capitalists aren't funding it. 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 African Gold Group finds some valuable resources, before it runs out of money.
Companies that lack both meaningful revenue and profits are usually considered high risk. 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). Some African Gold Group investors have already had a taste of the bitterness stocks like this can leave in the mouth.
African Gold Group had liabilities exceeding cash by US$1,517,455 when it last reported in December 2018, according to our data. That makes it extremely high risk, in our view. But with the share price diving 23% per year, over 5 years, it's probably fair to say that some shareholders no longer believe the company will succeed. You can click on the image below to see (in greater detail) how African Gold Group's cash levels have changed over time.
In reality it's hard to have much certainty when valuing a business that has neither revenue or profit. Given that situation, would you be concerned if it turned out insiders were relentlessly selling 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
African Gold Group shareholders are down 6.7% for the year, but the market itself is up 2.5%. 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. Unfortunately, longer term shareholders are suffering worse, given the loss of 23% doled out over the last five years. We'd need to see some sustained improvements in the key metrics before we could muster much enthusiasm. Shareholders might want to examine this detailed historical graph of past earnings, revenue and cash flow.
If you would prefer to check out another company -- one with potentially superior financials -- then do not miss this free list of companies that have proven they can grow earnings.
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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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.