Investors Appear Satisfied With Propel Holdings Inc.'s (TSE:PRL) Prospects As Shares Rocket 40%

The Propel Holdings Inc. (TSE:PRL) share price has done very well over the last month, posting an excellent gain of 40%. The last month tops off a massive increase of 233% in the last year.

Following the firm bounce in price, given around half the companies in Canada have price-to-earnings ratios (or "P/E's") below 13x, you may consider Propel Holdings as a stock to potentially avoid with its 20x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

Propel Holdings certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. The P/E is probably high because investors think the company will continue to navigate the broader market headwinds better than most. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Propel Holdings

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

How Is Propel Holdings' Growth Trending?

Propel Holdings' P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 84% last year. The latest three year period has also seen an excellent 160% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Shifting to the future, estimates from the five analysts covering the company suggest earnings should grow by 40% each year over the next three years. With the market only predicted to deliver 8.3% per year, the company is positioned for a stronger earnings result.

With this information, we can see why Propel Holdings is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Propel Holdings' P/E?

Propel Holdings shares have received a push in the right direction, but its P/E is elevated too. 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.

As we suspected, our examination of Propel Holdings' analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 4 warning signs for Propel Holdings you should be aware of, and 2 of them are potentially serious.

Of course, you might also be able to find a better stock than Propel Holdings. 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.