Nasdaq
华尔街日报Improved Earnings Required Before Centerra Gold Inc. (TSE:CG) Stock's 26% Jump Looks Justified
Despite an already strong run, Centerra Gold Inc. (TSE:CG) shares have been powering on, with a gain of 26% in the last thirty days. The annual gain comes to 152% following the latest surge, making investors sit up and take notice.
Even after such a large jump in price, given about half the companies in Canada have price-to-earnings ratios (or "P/E's") above 17x, you may still consider Centerra Gold as an attractive investment with its 8.9x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.
Recent times have been advantageous for Centerra Gold as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.
Check out our latest analysis for Centerra Gold
How Is Centerra Gold's Growth Trending?
Centerra Gold's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.
If we review the last year of earnings growth, the company posted a terrific increase of 236%. The strong recent performance means it was also able to grow EPS by 46% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.
Shifting to the future, estimates from the four analysts covering the company suggest earnings should grow by 1.5% over the next year. Meanwhile, the rest of the market is forecast to expand by 23%, which is noticeably more attractive.
With this information, we can see why Centerra Gold is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.
The Final Word
The latest share price surge wasn't enough to lift Centerra Gold's P/E close to the market median. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.
We've established that Centerra Gold maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.
There are also other vital risk factors to consider and we've discovered 2 warning signs for Centerra Gold (1 is potentially serious!) that you should be aware of before investing here.
It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).
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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.