Further Upside For Journey Energy Inc. (TSE:JOY) Shares Could Introduce Price Risks After 28% Bounce

Despite an already strong run, Journey Energy Inc. (TSE:JOY) shares have been powering on, with a gain of 28% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 30% in the last year.

Even after such a large jump in price, Journey Energy's price-to-earnings (or "P/E") ratio of 12.7x might still make it look like a buy right now compared to the market in Canada, where around half of the companies have P/E ratios above 17x and even P/E's above 34x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

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Recent times have been advantageous for Journey Energy as its earnings have been rising faster than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for Journey Energy

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

How Is Journey Energy's Growth Trending?

Journey Energy's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

If we review the last year of earnings growth, the company posted a terrific increase of 24%. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 92% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Turning to the outlook, the next year should generate growth of 31% as estimated by the sole analyst watching the company. With the market only predicted to deliver 16%, the company is positioned for a stronger earnings result.

With this information, we find it odd that Journey Energy is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

What We Can Learn From Journey Energy's P/E?

Despite Journey Energy's shares building up a head of steam, its P/E still lags most other companies. 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.

Our examination of Journey Energy's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Plus, you should also learn about this 1 warning sign we've spotted with Journey Energy.

If you're unsure about the strength of Journey Energy'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.