Alamos Gold Inc.'s (TSE:AGI) 28% Jump Shows Its Popularity With Investors

Alamos Gold Inc. (TSE:AGI) shares have had a really impressive month, gaining 28% after a shaky period beforehand. Looking further back, the 21% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

After such a large jump in price, Alamos Gold may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 27.9x, since almost half of all companies in Canada have P/E ratios under 13x 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.

Alamos Gold 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. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for Alamos Gold

Keen to find out how analysts think Alamos Gold's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Growth For Alamos Gold?

The only time you'd be truly comfortable seeing a P/E as steep as Alamos Gold's 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 461%. Pleasingly, EPS has also lifted 44% in aggregate from three years ago, thanks to the last 12 months of growth. 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 13% each year as estimated by the nine analysts watching the company. With the market only predicted to deliver 9.0% per year, the company is positioned for a stronger earnings result.

With this information, we can see why Alamos Gold is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On Alamos Gold's P/E

Alamos Gold's P/E is flying high just like its stock has during the last month. 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.

As we suspected, our examination of Alamos Gold's 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.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for Alamos Gold with six simple checks will allow you to discover any risks that could be an issue.

If you're unsure about the strength of Alamos Gold'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.