After Leaping 55% PHX Energy Services Corp. (TSE:PHX) Shares Are Not Flying Under The Radar

PHX Energy Services Corp. (TSE:PHX) shareholders would be excited to see that the share price has had a great month, posting a 55% gain and recovering from prior weakness. The last 30 days bring the annual gain to a very sharp 47%.

After such a large jump in price, given close to half the companies in Canada have price-to-earnings ratios (or "P/E's") below 10x, you may consider PHX Energy Services as a stock to potentially avoid with its 14.1x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's lofty.

PHX Energy Services certainly has been doing a good job lately as it's been growing earnings more than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for PHX Energy Services

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

Does Growth Match The High P/E?

In order to justify its P/E ratio, PHX Energy Services would need to produce impressive growth in excess of the market.

If we review the last year of earnings growth, the company posted a terrific increase of 173%. Still, EPS has barely risen at all from three years ago in total, which is not ideal. 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 117% as estimated by the three analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 13%, which is noticeably less attractive.

In light of this, it's understandable that PHX Energy Services' P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

The large bounce in PHX Energy Services' shares has lifted the company's P/E to a fairly high level. 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.

We've established that PHX Energy Services maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

Before you settle on your opinion, we've discovered 4 warning signs for PHX Energy Services (1 doesn't sit too well with us!) that you should be aware of.

If these risks are making you reconsider your opinion on PHX Energy Services, 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.