Cue Energy Resources Limited's (ASX:CUE) Shares Bounce 49% But Its Business Still Trails The Market

Cue Energy Resources Limited (ASX:CUE) shareholders have had their patience rewarded with a 49% share price jump in the last month. The last 30 days bring the annual gain to a very sharp 49%.

Although its price has surged higher, Cue Energy Resources may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 4x, since almost half of all companies in Australia have P/E ratios greater than 20x and even P/E's higher than 36x are not unusual. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Earnings have risen firmly for Cue Energy Resources recently, which is pleasing to see. One possibility is that the P/E is low because investors think this respectable earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

See our latest analysis for Cue Energy Resources

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 Cue Energy Resources' earnings, revenue and cash flow.

Is There Any Growth For Cue Energy Resources?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Cue Energy Resources' to be considered reasonable.

Retrospectively, the last year delivered an exceptional 24% gain to the company's bottom line. Still, EPS has barely risen at all from three years ago in total, which is not ideal. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 28% shows it's noticeably less attractive on an annualised basis.

With this information, we can see why Cue Energy Resources is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Key Takeaway

Even after such a strong price move, Cue Energy Resources' P/E still trails the rest of the market significantly. 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 Cue Energy Resources maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 2 warning signs for Cue Energy Resources (1 doesn't sit too well with us!) that you should be aware of.

You might be able to find a better investment than Cue Energy Resources. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.