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華爾街日報Canso Select Opportunities Corporation's (CVE:CSOC.A) Share Price Boosted 110% But Its Business Prospects Need A Lift Too
The Canso Select Opportunities Corporation (CVE:CSOC.A) share price has done very well over the last month, posting an excellent gain of 110%. The last month tops off a massive increase of 246% in the last year.
Even after such a large jump in price, Canso Select Opportunities' price-to-earnings (or "P/E") ratio of 3.2x might still make it look like a strong buy right now compared to the market in Canada, where around half of the companies have P/E ratios above 17x and even P/E's above 30x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.
Canso Select Opportunities certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.
View our latest analysis for Canso Select Opportunities
What Are Growth Metrics Telling Us About The Low P/E?
There's an inherent assumption that a company should far underperform the market for P/E ratios like Canso Select Opportunities' to be considered reasonable.
Retrospectively, the last year delivered an exceptional 99% gain to the company's bottom line. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.
Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 24% shows it's noticeably less attractive on an annualised basis.
In light of this, it's understandable that Canso Select Opportunities' P/E sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.
The Final Word
Canso Select Opportunities' recent share price jump still sees its P/E sitting firmly flat on the ground. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.
As we suspected, our examination of Canso Select Opportunities revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.
Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Canso Select Opportunities (1 makes us a bit uncomfortable) you should be aware of.
If you're unsure about the strength of Canso Select Opportunities' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
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