Investors Interested In Pollard Banknote Limited's (TSE:PBL) Earnings

Pollard Banknote Limited's (TSE:PBL) price-to-earnings (or "P/E") ratio of 18.7x might make it look like a sell right now compared to the market in Canada, where around half of the companies have P/E ratios below 14x and even P/E's below 8x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Pollard Banknote has been doing quite well of late. It seems that many are expecting the company to continue defying the broader market adversity, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for Pollard Banknote

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

Is There Enough Growth For Pollard Banknote?

In order to justify its P/E ratio, Pollard Banknote would need to produce impressive growth in excess of the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 66% last year. Still, incredibly EPS has fallen 9.7% in total from three years ago, which is quite disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Turning to the outlook, the next year should generate growth of 42% as estimated by the four analysts watching the company. That's shaping up to be materially higher than the 25% growth forecast for the broader market.

In light of this, it's understandable that Pollard Banknote'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.

The Bottom Line On Pollard Banknote's P/E

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Pollard Banknote maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

You always need to take note of risks, for example - Pollard Banknote has 1 warning sign we think you should be aware of.

You might be able to find a better investment than Pollard Banknote. 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.