RediShred Capital Corp.'s (CVE:KUT) Share Price Not Quite Adding Up

RediShred Capital Corp.'s (CVE:KUT) price-to-earnings (or "P/E") ratio of 17.1x might make it look like a sell right now compared to the market in Canada, where around half of the companies have P/E ratios below 13x and even P/E's below 7x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's lofty.

RediShred Capital could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. If not, then existing shareholders may be extremely nervous about the viability of the share price.

Check out our latest analysis for RediShred Capital

If you'd like to see what analysts are forecasting going forward, you should check out our free report on RediShred Capital.

How Is RediShred Capital's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as high as RediShred Capital's is when the company's growth is on track to outshine the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 32%. Even so, admirably EPS has lifted 58% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Looking ahead now, EPS is anticipated to plummet, contracting by 96% during the coming year according to the three analysts following the company. With the rest of the market predicted to shrink by 8.3%, it's a sub-optimal result.

With this information, it's strange that RediShred Capital is trading at a higher P/E in comparison. With earnings going quickly in reverse, it's not guaranteed that the P/E has found a floor yet. Maintaining these prices will be extremely difficult to achieve as the weak outlook is likely to weigh down the shares eventually.

The Key Takeaway

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.

We've established that RediShred Capital currently trades on a much higher than expected P/E since its earnings forecast is even worse than the struggling market. When we see a weak earnings outlook, we suspect the share price is at risk of declining, sending the high P/E lower. We're also cautious about the company's ability to resist even greater pain to its business from the broader market turmoil. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

We don't want to rain on the parade too much, but we did also find 4 warning signs for RediShred Capital (1 is a bit unpleasant!) that you need to be mindful of.

Of course, you might also be able to find a better stock than RediShred Capital. 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.

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