Investors Appear Satisfied With IAMGOLD Corporation's (TSE:IMG) Prospects As Shares Rocket 37%

IAMGOLD Corporation (TSE:IMG) shareholders have had their patience rewarded with a 37% share price jump in the last month. The last month tops off a massive increase of 126% in the last year.

After such a large jump in price, IAMGOLD's price-to-earnings (or "P/E") ratio of 22.2x might make it look like a sell right now compared to the market in Canada, where around half of the companies have P/E ratios below 14x and even P/E's below 7x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

Recent times have been pleasing for IAMGOLD as its earnings have risen in spite of the market's earnings going into reverse. The P/E is probably high because investors think the company will continue to navigate the broader market headwinds better than most. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for IAMGOLD

Keen to find out how analysts think IAMGOLD's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Growth For IAMGOLD?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 144% last year. Pleasingly, EPS has also lifted 72% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Shifting to the future, estimates from the six analysts covering the company suggest earnings should grow by 47% each year over the next three years. With the market only predicted to deliver 10.0% per year, the company is positioned for a stronger earnings result.

In light of this, it's understandable that IAMGOLD's 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 IAMGOLD's P/E?

IAMGOLD shares have received a push in the right direction, but its P/E is elevated too. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of IAMGOLD's 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.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with IAMGOLD (at least 1 which is a bit concerning), and understanding them should be part of your investment process.

If you're unsure about the strength of IAMGOLD's 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.