TerraVest Industries Inc.'s (TSE:TVK) P/E Is Still On The Mark Following 26% Share Price Bounce

TerraVest Industries Inc. (TSE:TVK) shares have had a really impressive month, gaining 26% after a shaky period beforehand. The last month tops off a massive increase of 143% in the last year.

After such a large jump in price, TerraVest Industries may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 28.9x, since almost half of all companies in Canada have P/E ratios under 14x and even P/E's lower than 7x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

TerraVest Industries certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. It seems that many are expecting the company to continue defying the broader market adversity, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for TerraVest Industries

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

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

The only time you'd be truly comfortable seeing a P/E as steep as TerraVest Industries' is when the company's growth is on track to outshine the market decidedly.

If we review the last year of earnings growth, the company posted a terrific increase of 29%. The strong recent performance means it was also able to grow EPS by 54% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 15% each year as estimated by the three analysts watching the company. With the market only predicted to deliver 9.7% each year, the company is positioned for a stronger earnings result.

In light of this, it's understandable that TerraVest Industries' P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On TerraVest Industries' P/E

The strong share price surge has got TerraVest Industries' P/E rushing to great heights 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.

As we suspected, our examination of TerraVest Industries' analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

It is also worth noting that we have found 3 warning signs for TerraVest Industries that you need to take into consideration.

If these risks are making you reconsider your opinion on TerraVest Industries, 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.