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Those Who Purchased Riversgold (ASX:RGL) Shares A Year Ago Have A 85% Loss To Show For It

Even the best investor on earth makes unsuccessful investments. But it would be foolish to simply accept every extremely large loss as an inevitable part of the game. So spare a thought for the long term shareholders of Riversgold Limited (ASX:RGL); the share price is down a whopping 85% in the last twelve months. That'd be a striking reminder about the importance of diversification. Riversgold hasn't been listed for long, so although we're wary of recent listings that perform poorly, it may still prove itself with time. Shareholders have had an even rougher run lately, with the share price down 23% in the last 90 days.

While a drop like that is definitely a body blow, money isn't as important as health and happiness.

View our latest analysis for Riversgold

Riversgold didn't have any revenue in the last year, so it's fair to say it doesn't yet have a proven product (or at least not one people are paying for). 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 Riversgold 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 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). Riversgold has already given some investors a taste of the bitter losses that high risk investing can cause.

Riversgold had liabilities exceeding cash by AU$86k when it last reported in June 2019, according to our data. That makes it extremely high risk, in our view. But since the share price has dived -85% in the last year , it looks like some investors think it's time to abandon ship, so to speak. The image below shows how Riversgold's balance sheet has changed over time; if you want to see the precise values, simply click on the image. You can see in the image below, how Riversgold's cash levels have changed over time (click to see the values).

ASX:RGL Historical Debt, January 21st 2020
ASX:RGL Historical Debt, January 21st 2020

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. You can click here to see if there are insiders selling.

A Different Perspective

Given that the market gained 25% in the last year, Riversgold shareholders might be miffed that they lost 83%. While the aim is to do better than that, it's worth recalling that even great long-term investments sometimes underperform for a year or more. With the stock down 23% over the last three months, the market doesn't seem to believe that the company has solved all its problems. Given the relatively short history of this stock, we'd remain pretty wary until we see some strong business performance. While it is well worth considering the different impacts that market conditions can have on the share price, there are other factors that are even more important. Take risks, for example - Riversgold has 6 warning signs (and 3 which are a bit unpleasant) we think you should know about.

We will like Riversgold 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.

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.

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. Thank you for reading.