Improved Earnings Required Before IAMGOLD Corporation (TSE:IMG) Stock's 27% Jump Looks Justified

Despite an already strong run, IAMGOLD Corporation (TSE:IMG) shares have been powering on, with a gain of 27% in the last thirty days. The last month tops off a massive increase of 165% in the last year.

Even after such a large jump in price, IAMGOLD may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 9.1x, since almost half of all companies in Canada have P/E ratios greater than 17x and even P/E's higher than 36x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

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Recent times have been advantageous for IAMGOLD 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 you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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Is There Any Growth For IAMGOLD?

In order to justify its P/E ratio, IAMGOLD would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered an exceptional 435% gain to the company's bottom line. Still, EPS has barely risen at all from three years ago in total, which is not ideal. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Looking ahead now, EPS is anticipated to climb by 2.8% each year during the coming three years according to the three analysts following the company. That's shaping up to be materially lower than the 12% per year growth forecast for the broader market.

With this information, we can see why IAMGOLD is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On IAMGOLD's P/E

IAMGOLD's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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.

We've established that IAMGOLD maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

You should always think about risks. Case in point, we've spotted 1 warning sign for IAMGOLD you should be aware of.

If these risks are making you reconsider your opinion on IAMGOLD, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.