Stock Analysis

Investors Aren't Entirely Convinced About Exco Technologies Limited's (TSE:XTC) Earnings

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TSX:XTC
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When close to half the companies in Canada have price-to-earnings ratios (or "P/E's") above 17x, you may consider Exco Technologies Limited (TSE:XTC) as an attractive investment with its 11x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Exco Technologies hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

See our latest analysis for Exco Technologies

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TSX:XTC Price Based on Past Earnings August 11th 2020
Keen to find out how analysts think Exco Technologies' future stacks up against the industry? In that case, our free report is a great place to start.

How Is Exco Technologies' Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as Exco Technologies' is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered a frustrating 23% decrease to the company's bottom line. As a result, earnings from three years ago have also fallen 45% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Turning to the outlook, the next year should generate growth of 21% as estimated by the three analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 5.0%, which is noticeably less attractive.

In light of this, it's peculiar that Exco Technologies' P/E sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Key Takeaway

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of Exco Technologies' analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for Exco Technologies with six simple checks will allow you to discover any risks that could be an issue.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a P/E ratio below 20x).

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