Optimistic Investors Push D-BOX Technologies Inc. (TSE:DBO) Shares Up 32% But Growth Is Lacking

D-BOX Technologies Inc. (TSE:DBO) shares have continued their recent momentum with a 32% gain in the last month alone. This latest share price bounce rounds out a remarkable 343% gain over the last twelve months.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about D-BOX Technologies' P/E ratio of 17.8x, since the median price-to-earnings (or "P/E") ratio in Canada is also close to 16x. 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.

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With earnings growth that's exceedingly strong of late, D-BOX Technologies has been doing very well. The P/E is probably moderate because investors think this strong earnings growth might not be enough to outperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

View our latest analysis for D-BOX Technologies

Although there are no analyst estimates available for D-BOX Technologies, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Some Growth For D-BOX Technologies?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 240% last year. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

This is in contrast to the rest of the market, which is expected to grow by 16% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's curious that D-BOX Technologies' P/E sits in line with the majority of other companies. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. They may be setting themselves up for future disappointment if the P/E falls to levels more in line with recent growth rates.

The Bottom Line On D-BOX Technologies' P/E

D-BOX Technologies appears to be back in favour with a solid price jump getting its P/E back in line with most other companies. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of D-BOX Technologies revealed its three-year earnings trends aren't impacting its P/E as much as we would have predicted, given they look worse than current market expectations. When we see weak earnings with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.

Having said that, be aware D-BOX Technologies is showing 2 warning signs in our investment analysis, you should know about.

Of course, you might also be able to find a better stock than D-BOX Technologies. So you may wish to see this free collection of other companies that have reasonable P/E ratios 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.