Little Excitement Around Payfare Inc.'s (TSE:PAY) Earnings As Shares Take 71% Pounding

Payfare Inc. (TSE:PAY) shareholders that were waiting for something to happen have been dealt a blow with a 71% share price drop in the last month. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 56% loss during that time.

After such a large drop in price, Payfare may be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 5.5x, since almost half of all companies in Canada have P/E ratios greater than 16x and even P/E's higher than 32x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Payfare has been doing quite well of late. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, which has repressed the P/E. 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 out of favour.

View our latest analysis for Payfare

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Payfare.

Is There Any Growth For Payfare?

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

Retrospectively, the last year delivered an exceptional 249% gain to the company's bottom line. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Looking ahead now, EPS is anticipated to slump, contracting by 70% during the coming year according to the three analysts following the company. That's not great when the rest of the market is expected to grow by 24%.

With this information, we are not surprised that Payfare is trading at a P/E lower than the market. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

What We Can Learn From Payfare's P/E?

Having almost fallen off a cliff, Payfare's share price has pulled its P/E way down as well. 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.

We've established that Payfare maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

Having said that, be aware Payfare is showing 3 warning signs in our investment analysis, and 2 of those shouldn't be ignored.

If you're unsure about the strength of Payfare's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.