Investors Holding Back On Jaguar Mining Inc. (TSE:JAG)
With a price-to-earnings (or "P/E") ratio of 5.6x Jaguar Mining Inc. (TSE:JAG) may be sending very bullish signals at the moment, given that almost half of all companies in Canada have P/E ratios greater than 16x and even P/E's higher than 34x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.
Jaguar Mining certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.
See our latest analysis for Jaguar Mining
We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Jaguar Mining's earnings, revenue and cash flow.
Is There Any Growth For Jaguar Mining?
The only time you'd be truly comfortable seeing a P/E as depressed as Jaguar Mining's is when the company's growth is on track to lag the market decidedly.
Taking a look back first, we see that the company grew earnings per share by an impressive 310% last year. Pleasingly, EPS has also lifted 800% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.
Comparing that to the market, which is only predicted to deliver 22% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.
In light of this, it's peculiar that Jaguar Mining's P/E sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.
The Final Word
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.
Our examination of Jaguar Mining revealed its three-year earnings trends aren't contributing to its P/E anywhere near as much as we would have predicted, given they look better than current market expectations. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. It appears many are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.
You should always think about risks. Case in point, we've spotted 1 warning sign for Jaguar Mining you should be aware of.
Of course, you might also be able to find a better stock than Jaguar Mining. So you may wish to see this free collection of other companies that sit on P/E's below 20x and have grown earnings strongly.
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. 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.
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