Risks To Shareholder Returns Are Elevated At These Prices For Ceres Global Ag Corp. (TSE:CRP)

With a median price-to-earnings (or "P/E") ratio of close to 14x in Canada, you could be forgiven for feeling indifferent about Ceres Global Ag Corp.'s (TSE:CRP) P/E ratio of 14.3x. 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.

Recent times have been quite advantageous for Ceres Global Ag as its earnings have been rising very briskly. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. 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.

See our latest analysis for Ceres Global Ag

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 Ceres Global Ag's earnings, revenue and cash flow.

How Is Ceres Global Ag's Growth Trending?

There's an inherent assumption that a company should be matching the market for P/E ratios like Ceres Global Ag's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 165% last year. However, this wasn't enough as the latest three year period has seen a very unpleasant 77% drop in EPS in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Comparing that to the market, which is predicted to deliver 26% growth in the next 12 months, the company's downward momentum based on recent medium-term earnings results is a sobering picture.

In light of this, it's somewhat alarming that Ceres Global Ag's P/E sits in line with the majority of other companies. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh on the share price eventually.

The Final Word

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.

Our examination of Ceres Global Ag revealed its shrinking earnings over the medium-term aren't impacting its P/E as much as we would have predicted, given the market is set to grow. Right now we are uncomfortable with the P/E as this earnings performance is unlikely to support a more positive sentiment for long. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.

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

If these risks are making you reconsider your opinion on Ceres Global Ag, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.