It's Down 26% But Calibre Mining Corp. (TSE:CXB) Could Be Riskier Than It Looks

Calibre Mining Corp. (TSE:CXB) shareholders won't be pleased to see that the share price has had a very rough month, dropping 26% and undoing the prior period's positive performance. The last month has meant the stock is now only up 3.1% during the last year.

After such a large drop in price, Calibre Mining may be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 6.4x, since almost half of all companies in Canada have P/E ratios greater than 15x and even P/E's higher than 33x are not unusual. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Calibre Mining certainly has been doing a good job lately as it's been growing earnings more than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for Calibre Mining

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How Is Calibre Mining's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as depressed as Calibre Mining's is when the company's growth is on track to lag the market decidedly.

Taking a look back first, we see that the company grew earnings per share by an impressive 159% last year. 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.

Looking ahead now, EPS is anticipated to climb by 15% per year during the coming three years according to the six analysts following the company. With the market only predicted to deliver 6.5% per year, the company is positioned for a stronger earnings result.

In light of this, it's peculiar that Calibre Mining's P/E sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Key Takeaway

Having almost fallen off a cliff, Calibre Mining's 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 Calibre Mining currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. 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. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

It is also worth noting that we have found 4 warning signs for Calibre Mining (1 is a bit unpleasant!) that you need to take into consideration.

If P/E ratios interest you, you may wish to see this free collection of other companies that have grown earnings strongly and trade on P/E's below 20x.

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This article by Simply Wall St is general in nature. 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.
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