The Price Is Right For Orla Mining Ltd. (TSE:OLA)

When close to half the companies in Canada have price-to-earnings ratios (or "P/E's") below 14x, you may consider Orla Mining Ltd. (TSE:OLA) as a stock to avoid entirely with its 23.7x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Recent times have been pleasing for Orla Mining 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.

View our latest analysis for Orla Mining

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

How Is Orla Mining's Growth Trending?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 90% last year. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Looking ahead now, EPS is anticipated to climb by 20% each year during the coming three years according to the three analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 9.4% per annum, which is noticeably less attractive.

In light of this, it's understandable that Orla Mining's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On Orla Mining's P/E

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 Orla Mining 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. It's hard to see the share price falling strongly in the near future under these circumstances.

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

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.