What Kolibri Global Energy Inc.'s (TSE:KEI) 35% Share Price Gain Is Not Telling You

Despite an already strong run, Kolibri Global Energy Inc. (TSE:KEI) shares have been powering on, with a gain of 35% in the last thirty days. The last month tops off a massive increase of 137% in the last year.

In spite of the firm bounce in price, it's still not a stretch to say that Kolibri Global Energy's price-to-earnings (or "P/E") ratio of 15.1x right now seems quite "middle-of-the-road" compared to the market in Canada, where the median P/E ratio is around 15x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

While the market has experienced earnings growth lately, Kolibri Global Energy's earnings have gone into reverse gear, which is not great. 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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Is There Some Growth For Kolibri Global Energy?

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 virtually the same number to the company's bottom line as the year before. That's essentially a continuation of what we've seen over the last three years, as its EPS growth has been virtually non-existent for that entire period. Therefore, it's fair to say that earnings growth has definitely eluded the company recently.

Shifting to the future, estimates from the dual analysts covering the company suggest earnings should grow by 17% over the next year. Meanwhile, the rest of the market is forecast to expand by 24%, which is noticeably more attractive.

With this information, we find it interesting that Kolibri Global Energy is trading at a fairly similar P/E to the market. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

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

Kolibri Global Energy appears to be back in favour with a solid price jump getting its P/E back in line with 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 Kolibri Global Energy's analyst forecasts revealed that its inferior earnings outlook isn't impacting its P/E as much as we would have predicted. Right now we are uncomfortable with the P/E as the predicted future earnings aren't likely to support a more positive sentiment for long. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for Kolibri Global Energy with six simple checks on some of these key factors.

If you're unsure about the strength of Kolibri Global 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.