Vertex Resource Group Ltd.'s (CVE:VTX) Shareholders Might Be Looking For Exit

With a price-to-earnings (or "P/E") ratio of 23.2x Vertex Resource Group Ltd. (CVE:VTX) may be sending very bearish signals at the moment, given that almost half of all companies in Canada have P/E ratios under 10x and even P/E's lower than 5x 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.

Earnings have risen at a steady rate over the last year for Vertex Resource Group, which is generally not a bad outcome. It might be that many expect the reasonable earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders may be a little nervous about the viability of the share price.

View our latest analysis for Vertex Resource Group

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Vertex Resource Group's earnings, revenue and cash flow.

Is There Enough Growth For Vertex Resource Group?

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

Retrospectively, the last year delivered a decent 6.4% gain to the company's bottom line. However, due to its less than impressive performance prior to this period, EPS growth is practically non-existent over the last three years overall. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 8.5% shows it's noticeably less attractive on an annualised basis.

With this information, we find it concerning that Vertex Resource Group is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with recent growth rates.

The Bottom Line On Vertex Resource Group's P/E

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Vertex Resource Group currently trades on a much higher than expected P/E since its recent three-year growth is lower than the wider market forecast. When we see weak earnings with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Before you settle on your opinion, we've discovered 3 warning signs for Vertex Resource Group (1 shouldn't be ignored!) that you should be aware of.

Of course, you might also be able to find a better stock than Vertex Resource Group. So you may wish to see this free collection of other companies that sit on P/E's below 20x and have grown earnings strongly.

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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.