Evolution Mining Limited's (ASX:EVN) 25% Jump Shows Its Popularity With Investors

Despite an already strong run, Evolution Mining Limited (ASX:EVN) shares have been powering on, with a gain of 25% in the last thirty days. The annual gain comes to 112% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, Evolution Mining's price-to-earnings (or "P/E") ratio of 24.4x might make it look like a sell right now compared to the market in Australia, where around half of the companies have P/E ratios below 17x and even P/E's below 9x 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 as high as it is.

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Evolution Mining certainly has been doing a good job lately as it's been growing earnings more than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for Evolution Mining

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

Is There Enough Growth For Evolution Mining?

Evolution Mining's P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.

Retrospectively, the last year delivered an exceptional 302% gain to the company's bottom line. Pleasingly, EPS has also lifted 195% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 20% per annum over the next three years. That's shaping up to be materially higher than the 15% per annum growth forecast for the broader market.

With this information, we can see why Evolution Mining is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On Evolution Mining's P/E

The large bounce in Evolution Mining's shares has lifted the company's P/E to a fairly high level. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Evolution Mining maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

Many other vital risk factors can be found on the company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Evolution Mining with six simple checks.

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.