Slammed 25% Kolibri Global Energy Inc. (TSE:KEI) Screens Well Here But There Might Be A Catch

Kolibri Global Energy Inc. (TSE:KEI) shareholders won't be pleased to see that the share price has had a very rough month, dropping 25% and undoing the prior period's positive performance. Of course, over the longer-term many would still wish they owned shares as the stock's price has soared 119% in the last twelve months.

In spite of the heavy fall in price, there still wouldn't be many who think Kolibri Global Energy's price-to-earnings (or "P/E") ratio of 13.5x is worth a mention when the median P/E in Canada is similar at about 15x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

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Kolibri Global Energy could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. It might be that many expect the dour earnings performance to strengthen positively, which has kept the P/E from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

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What Are Growth Metrics Telling Us About The P/E?

In order to justify its P/E ratio, Kolibri Global Energy would need to produce growth that's similar to the market.

Retrospectively, the last year delivered a frustrating 6.1% decrease to the company's bottom line. As a result, earnings from three years ago have also fallen 83% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Looking ahead now, EPS is anticipated to climb by 32% during the coming year according to the two analysts following the company. That's shaping up to be materially higher than the 21% growth forecast for the broader market.

In light of this, it's curious that Kolibri Global Energy's P/E sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Final Word

With its share price falling into a hole, the P/E for Kolibri Global Energy looks quite average now. 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.

We've established that Kolibri Global Energy currently trades on a lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for Kolibri Global Energy with six simple checks.

If these risks are making you reconsider your opinion on Kolibri Global Energy, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.