Bird Construction Inc.'s (TSE:BDT) 25% Jump Shows Its Popularity With Investors

Bird Construction Inc. (TSE:BDT) shares have continued their recent momentum with a 25% gain in the last month alone. The last month tops off a massive increase of 209% in the last year.

Since its price has surged higher, given around half the companies in Canada have price-to-earnings ratios (or "P/E's") below 14x, you may consider Bird Construction as a stock to potentially avoid with its 18.6x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's superior to most other companies of late, Bird Construction has been doing relatively well. The P/E is probably high because investors think this strong earnings performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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How Is Bird Construction's Growth Trending?

Bird Construction'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 57% gain to the company's bottom line. The latest three year period has also seen an excellent 61% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next year should generate growth of 45% as estimated by the eight analysts watching the company. That's shaping up to be materially higher than the 24% growth forecast for the broader market.

With this information, we can see why Bird Construction 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.

What We Can Learn From Bird Construction's P/E?

Bird Construction shares have received a push in the right direction, but its P/E is elevated too. 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.

As we suspected, our examination of Bird Construction's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

Before you settle on your opinion, we've discovered 1 warning sign for Bird Construction that you should be aware of.

If you're unsure about the strength of Bird Construction's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com