Little Excitement Around Prairie Provident Resources Inc.'s (TSE:PPR) Earnings As Shares Take 35% Pounding

The Prairie Provident Resources Inc. (TSE:PPR) share price has fared very poorly over the last month, falling by a substantial 35%. Still, a bad month hasn't completely ruined the past year with the stock gaining 30%, which is great even in a bull market.

Since its price has dipped substantially, Prairie Provident Resources' price-to-earnings (or "P/E") ratio of 2x might make it look like a strong buy right now compared to the market in Canada, where around half of the companies have P/E ratios above 11x and even P/E's above 23x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

With earnings growth that's exceedingly strong of late, Prairie Provident Resources has been doing very well. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Prairie Provident Resources

Although there are no analyst estimates available for Prairie Provident Resources, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Prairie Provident Resources' Growth Trending?

Prairie Provident Resources' P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.

Retrospectively, the last year delivered an exceptional 68% gain to the company's bottom line. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Comparing that to the market, which is predicted to deliver 8.1% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

With this information, we can see why Prairie Provident Resources is trading at a P/E lower than the market. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Final Word

Having almost fallen off a cliff, Prairie Provident Resources' share price has pulled its P/E way down as well. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Prairie Provident Resources maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

You need to take note of risks, for example - Prairie Provident Resources has 4 warning signs (and 3 which shouldn't be ignored) we think you should know about.

If you're unsure about the strength of Prairie Provident Resources' 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.