Earnings Tell The Story For Bombardier Inc. (TSE:BBD.B) As Its Stock Soars 59%

Despite an already strong run, Bombardier Inc. (TSE:BBD.B) shares have been powering on, with a gain of 59% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 62% in the last year.

After such a large jump in price, Bombardier may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 24.4x, since almost half of all companies in Canada have P/E ratios under 14x and even P/E's lower than 7x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

With earnings that are retreating more than the market's of late, Bombardier has been very sluggish. It might be that many expect the dismal earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be very nervous about the viability of the share price.

See our latest analysis for Bombardier

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

How Is Bombardier's Growth Trending?

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

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 39%. At least EPS has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Turning to the outlook, the next three years should generate growth of 37% per year as estimated by the analysts watching the company. That's shaping up to be materially higher than the 7.8% per year growth forecast for the broader market.

In light of this, it's understandable that Bombardier's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On Bombardier's P/E

Bombardier's P/E is flying high just like its stock has during the last month. 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 Bombardier maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

Plus, you should also learn about these 5 warning signs we've spotted with Bombardier (including 2 which make us uncomfortable).

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.