Shareholders Should Be Pleased With Alamos Gold Inc.'s (TSE:AGI) Price

When close to half the companies in Canada have price-to-earnings ratios (or "P/E's") below 14x, you may consider Alamos Gold Inc. (TSE:AGI) as a stock to avoid entirely with its 40.1x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

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With earnings growth that's superior to most other companies of late, Alamos Gold has been doing relatively well. The P/E is probably high because investors think this strong earnings performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Alamos Gold

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

How Is Alamos Gold's Growth Trending?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Alamos Gold's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 21%. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Shifting to the future, estimates from the eight analysts covering the company suggest earnings should grow by 39% per annum over the next three years. Meanwhile, the rest of the market is forecast to only expand by 9.9% per year, which is noticeably less attractive.

In light of this, it's understandable that Alamos Gold's 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 Bottom Line On Alamos Gold's P/E

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. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

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

Of course, you might also be able to find a better stock than Alamos Gold. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.