Earnings Tell The Story For Magellan Aerospace Corporation (TSE:MAL) As Its Stock Soars 34%

The Magellan Aerospace Corporation (TSE:MAL) share price has done very well over the last month, posting an excellent gain of 34%. The last 30 days bring the annual gain to a very sharp 67%.

Since its price has surged higher, Magellan Aerospace may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 21.6x, since almost half of all companies in Canada have P/E ratios under 15x and even P/E's lower than 8x are not unusual. 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.

Recent times have been advantageous for Magellan Aerospace as its earnings have been rising faster than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Magellan Aerospace

Keen to find out how analysts think Magellan Aerospace's future stacks up against the industry? In that case, our free report is a great place to start.

What Are Growth Metrics Telling Us About The High P/E?

The only time you'd be truly comfortable seeing a P/E as high as Magellan Aerospace's is when the company's growth is on track to outshine the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 285% last year. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Turning to the outlook, the next year should generate growth of 47% as estimated by the two analysts watching the company. That's shaping up to be materially higher than the 23% growth forecast for the broader market.

In light of this, it's understandable that Magellan Aerospace'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.

What We Can Learn From Magellan Aerospace's P/E?

Magellan Aerospace's P/E is getting right up there since its shares have risen strongly. 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 Magellan Aerospace 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. Unless these conditions change, they will continue to provide strong support to the share price.

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

If you're unsure about the strength of Magellan Aerospace'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.