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Those Who Purchased Prodigy Gold (ASX:PRX) Shares Five Years Ago Have A 67% Loss To Show For It

We think intelligent long term investing is the way to go. But no-one is immune from buying too high. Zooming in on an example, the Prodigy Gold NL (ASX:PRX) share price dropped 67% in the last half decade. That is extremely sub-optimal, to say the least. The good news is that the stock is up 4.5% in the last week.

Check out our latest analysis for Prodigy Gold

Prodigy Gold recorded just AU$168,037 in revenue over the last twelve months, which isn't really enough for us to consider it to have a proven product. 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. For example, investors may be hoping that Prodigy Gold finds some valuable resources, before it runs out of money.

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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. Some Prodigy Gold investors have already had a taste of the bitterness stocks like this can leave in the mouth.

Prodigy Gold had cash in excess of all liabilities of just AU$1.5m when it last reported (June 2019). So if it has not already moved to replenish reserves, we think the near-term chances of a capital raising event are pretty high. With that in mind, you can understand why the share price dropped 20% per year, over 5 years . You can see in the image below, how Prodigy Gold's cash levels have changed over time (click to see the values). The image below shows how Prodigy Gold's balance sheet has changed over time; if you want to see the precise values, simply click on the image.

ASX:PRX Historical Debt, October 10th 2019
ASX:PRX Historical Debt, October 10th 2019

In reality it's hard to have much certainty when valuing a business that has neither revenue or profit. What if insiders are ditching the stock hand over fist? 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

We're pleased to report that Prodigy Gold shareholders have received a total shareholder return of 32% over one year. That certainly beats the loss of about 20% per year over the last half decade. The long term loss makes us cautious, but the short term TSR gain certainly hints at a brighter future. You could get a better understanding of Prodigy Gold's growth by checking out this more detailed historical graph of earnings, revenue and cash flow.

We will like Prodigy Gold better if we see some big insider buys. While we wait, check out this free list of growing companies with considerable, recent, insider buying.

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

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.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.