Hudbay Minerals Inc.'s (TSE:HBM) 31% Jump Shows Its Popularity With Investors

Hudbay Minerals Inc. (TSE:HBM) shareholders have had their patience rewarded with a 31% share price jump in the last month. The last 30 days bring the annual gain to a very sharp 52%.

Following the firm bounce in price, Hudbay Minerals may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 36.1x, since almost half of all companies in Canada have P/E ratios under 13x and even P/E's lower than 7x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Recent times haven't been advantageous for Hudbay Minerals as its earnings have been falling quicker than most other companies. One possibility is that the P/E is high because investors think the company will turn things around completely and accelerate past most others in the market. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Hudbay Minerals

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How Is Hudbay Minerals' Growth Trending?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 21%. This has erased any of its gains during the last three years, with practically no change in EPS being achieved in total. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 35% per annum as estimated by the eleven analysts watching the company. That's shaping up to be materially higher than the 9.3% each year growth forecast for the broader market.

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.

The Final Word

The strong share price surge has got Hudbay Minerals' P/E rushing to great heights as well. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Hudbay Minerals' 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. Unless these conditions change, they will continue to provide strong support to the share price.

Before you settle on your opinion, we've discovered 2 warning signs for Hudbay Minerals that you should be aware of.

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.