Market Cool On BQE Water Inc.'s (CVE:BQE) Earnings

With a median price-to-earnings (or "P/E") ratio of close to 15x in Canada, you could be forgiven for feeling indifferent about BQE Water Inc.'s (CVE:BQE) P/E ratio of 16.3x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

BQE Water 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 moderate because investors think this strong earnings performance might be about to tail off. 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 not quite in favour.

View our latest analysis for BQE Water

Want the full picture on analyst estimates for the company? Then our free report on BQE Water will help you uncover what's on the horizon.

How Is BQE Water's Growth Trending?

The only time you'd be comfortable seeing a P/E like BQE Water's is when the company's growth is tracking the market closely.

If we review the last year of earnings growth, the company posted a terrific increase of 86%. The latest three year period has also seen an excellent 137% 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 34% as estimated by the lone analyst watching the company. That's shaping up to be materially higher than the 20% growth forecast for the broader market.

With this information, we find it interesting that BQE Water is trading at a fairly similar P/E to the market. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Final Word

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.

Our examination of BQE Water's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

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

You might be able to find a better investment than BQE Water. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.