Take Care Before Diving Into The Deep End On Equinox Gold Corp. (TSE:EQX)

When close to half the companies in Canada have price-to-earnings ratios (or "P/E's") above 15x, you may consider Equinox Gold Corp. (TSE:EQX) as an attractive investment with its 10.5x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Recent times have been advantageous for Equinox Gold as its earnings have been rising faster 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.

See our latest analysis for Equinox Gold

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

Is There Any Growth For Equinox Gold?

The only time you'd be truly comfortable seeing a P/E as low as Equinox Gold's is when the company's growth is on track to lag the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 339% last year. Still, incredibly EPS has fallen 73% in total from three years ago, which is quite disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Shifting to the future, estimates from the five analysts covering the company suggest earnings should grow by 33% per annum over the next three years. That's shaping up to be materially higher than the 8.4% per annum growth forecast for the broader market.

In light of this, it's peculiar that Equinox Gold'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

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.

Our examination of Equinox Gold's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

There are also other vital risk factors to consider and we've discovered 3 warning signs for Equinox Gold (1 doesn't sit too well with us!) that you should be aware of before investing here.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.