Earnings Not Telling The Story For Kinross Gold Corporation (TSE:K) After Shares Rise 25%

Despite an already strong run, Kinross Gold Corporation (TSE:K) shares have been powering on, with a gain of 25% in the last thirty days. The annual gain comes to 116% following the latest surge, making investors sit up and take notice.

Although its price has surged higher, there still wouldn't be many who think Kinross Gold's price-to-earnings (or "P/E") ratio of 15.4x is worth a mention when the median P/E in Canada is similar at about 16x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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With earnings growth that's superior to most other companies of late, Kinross Gold has been doing relatively well. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

See our latest analysis for Kinross Gold

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

Is There Some Growth For Kinross Gold?

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

Retrospectively, the last year delivered an exceptional 210% gain to the company's bottom line. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. 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 analysts covering the company suggest earnings should grow by 2.9% each year over the next three years. That's shaping up to be materially lower than the 9.7% each year growth forecast for the broader market.

In light of this, it's curious that Kinross Gold's P/E sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of earnings growth is likely to weigh down the shares eventually.

The Final Word

Its shares have lifted substantially and now Kinross Gold's P/E is also back up to the market median. 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.

Our examination of Kinross Gold's analyst forecasts revealed that its inferior earnings outlook isn't impacting its P/E as much as we would have predicted. Right now we are uncomfortable with the P/E as the predicted future earnings aren't likely to support a more positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

It is also worth noting that we have found 2 warning signs for Kinross Gold (1 is a bit concerning!) that you need to take into consideration.

If these risks are making you reconsider your opinion on Kinross Gold, 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.