Nasdaq
华尔街日报Steppe Gold Ltd. (TSE:STGO) Surges 29% Yet Its Low P/E Is No Reason For Excitement
Steppe Gold Ltd. (TSE:STGO) shares have had a really impressive month, gaining 29% after a shaky period beforehand. The last month tops off a massive increase of 237% in the last year.
Even after such a large jump in price, Steppe Gold's price-to-earnings (or "P/E") ratio of 9.4x might still make it look like a 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 31x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.
For example, consider that Steppe Gold's financial performance has been poor lately as its earnings have been in decline. One possibility is that the P/E is low because investors think the company won't do enough to avoid underperforming 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 Steppe Gold
Does Growth Match The Low P/E?
Steppe 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.
Retrospectively, the last year delivered a frustrating 62% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 99% in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.
In contrast to the company, the rest of the market is expected to grow by 24% over the next year, which really puts the company's recent medium-term earnings decline into perspective.
With this information, we are not surprised that Steppe Gold is trading at a P/E lower than the market. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.
The Bottom Line On Steppe Gold's P/E
The latest share price surge wasn't enough to lift Steppe Gold's P/E close to the market median. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.
We've established that Steppe Gold maintains its low P/E on the weakness of its sliding earnings over the medium-term, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.
It is also worth noting that we have found 1 warning sign for Steppe Gold that you need to take into consideration.
Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.