Investors Still Aren't Entirely Convinced By Perseus Mining Limited's (ASX:PRU) Earnings Despite 26% Price Jump

Perseus Mining Limited (ASX:PRU) shares have had a really impressive month, gaining 26% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 62%.

Even after such a large jump in price, Perseus Mining may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 9.7x, since almost half of all companies in Australia have P/E ratios greater than 21x and even P/E's higher than 39x 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.

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Perseus Mining certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. 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.

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How Is Perseus Mining's Growth Trending?

Perseus Mining's P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.

If we review the last year of earnings growth, the company posted a worthy increase of 14%. The latest three year period has also seen an excellent 112% overall rise in EPS, aided somewhat by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the seven analysts covering the company suggest earnings should grow by 14% per annum over the next three years. That's shaping up to be similar to the 16% each year growth forecast for the broader market.

With this information, we find it odd that Perseus Mining is trading at a P/E lower than the market. It may be that most investors are not convinced the company can achieve future growth expectations.

The Bottom Line On Perseus Mining's P/E

Even after such a strong price move, Perseus Mining's P/E still trails the rest of the market significantly. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Perseus Mining currently trades on a lower than expected P/E since its forecast growth is in line with the wider market. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Perseus Mining with six simple checks on some of these key factors.

If these risks are making you reconsider your opinion on Perseus Mining, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.