Andean Precious Metals Corp. (TSE:APM) Stock Rockets 44% But Many Are Still Ignoring The Company

Andean Precious Metals Corp. (TSE:APM) shares have continued their recent momentum with a 44% gain in the last month alone. The annual gain comes to 198% following the latest surge, making investors sit up and take notice.

Although its price has surged higher, Andean Precious Metals' price-to-earnings (or "P/E") ratio of 9x might still make it look like a buy right now compared to the market in Canada, where around half of the companies have P/E ratios above 16x and even P/E's above 30x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

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Andean Precious Metals hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

See our latest analysis for Andean Precious Metals

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How Is Andean Precious Metals' Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like Andean Precious Metals' to be considered reasonable.

Retrospectively, the last year delivered a frustrating 14% decrease to the company's bottom line. However, a few very strong years before that means that it was still able to grow EPS by an impressive 346% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 23% each year as estimated by the three analysts watching the company. With the market only predicted to deliver 11% per year, the company is positioned for a stronger earnings result.

With this information, we find it odd that Andean Precious Metals is trading at a P/E lower than the market. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Final Word

Andean Precious Metals' stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

Our examination of Andean Precious Metals' analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Andean Precious Metals that you should be aware of.

Of course, you might also be able to find a better stock than Andean Precious Metals. 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.