Optimistic Investors Push Crew Energy Inc. (TSE:CR) Shares Up 64% But Growth Is Lacking

The Crew Energy Inc. (TSE:CR) share price has done very well over the last month, posting an excellent gain of 64%. Notwithstanding the latest gain, the annual share price return of 6.0% isn't as impressive.

In spite of the firm bounce in price, there still wouldn't be many who think Crew Energy's price-to-earnings (or "P/E") ratio of 15.8x is worth a mention when the median P/E in Canada is similar at about 14x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

With earnings that are retreating more than the market's of late, Crew Energy has been very sluggish. One possibility is that the P/E is moderate because investors think the company's earnings trend will eventually fall in line with most others in the market. You'd much rather the company wasn't bleeding earnings if you still believe in the business. Or at the very least, you'd be hoping it doesn't keep underperforming if your plan is to pick up some stock while it's not in favour.

Check out our latest analysis for Crew Energy

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

Is There Some Growth For Crew Energy?

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

Retrospectively, the last year delivered a frustrating 73% decrease to the company's bottom line. At least EPS has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Turning to the outlook, the next year should generate growth of 13% as estimated by the dual analysts watching the company. That's shaping up to be materially lower than the 29% growth forecast for the broader market.

With this information, we find it interesting that Crew Energy is trading at a fairly similar P/E to the market. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of earnings growth is likely to weigh down the shares eventually.

The Bottom Line On Crew Energy's P/E

Crew Energy's stock has a lot of momentum behind it lately, which has brought its P/E level with the market. 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 Crew Energy's analyst forecasts revealed that its inferior earnings outlook isn't impacting its P/E as much as we would have predicted. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

You should always think about risks. Case in point, we've spotted 2 warning signs for Crew Energy you should be aware of, and 1 of them is significant.

Of course, you might also be able to find a better stock than Crew Energy. 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.