Hudbay Minerals Inc. (TSE:HBM) Stocks Pounded By 26% But Not Lagging Market On Growth Or Pricing

Hudbay Minerals Inc. (TSE:HBM) shares have had a horrible month, losing 26% after a relatively good period beforehand. Still, a bad month hasn't completely ruined the past year with the stock gaining 29%, which is great even in a bull market.

Even after such a large drop in price, Hudbay Minerals' price-to-earnings (or "P/E") ratio of 32.8x might still make it look like a strong sell right now compared to the market in Canada, where around half of the companies have P/E ratios below 13x and even P/E's below 7x are quite common. 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.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Hudbay Minerals has been doing quite well of late. 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.

See our latest analysis for Hudbay Minerals

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Does Growth Match The High P/E?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 445% last year. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. 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 47% per annum over the next three years. With the market only predicted to deliver 8.1% per year, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Hudbay Minerals' 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.

What We Can Learn From Hudbay Minerals' P/E?

Hudbay Minerals' shares may have retreated, but its P/E is still flying high. 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.

We've established that Hudbay Minerals maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

It is also worth noting that we have found 3 warning signs for Hudbay Minerals that you need to take into consideration.

If you're unsure about the strength of Hudbay Minerals' 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.