A Piece Of The Puzzle Missing From Orezone Gold Corporation's (TSE:ORE) 26% Share Price Climb

The Orezone Gold Corporation (TSE:ORE) share price has done very well over the last month, posting an excellent gain of 26%. Looking back a bit further, it's encouraging to see the stock is up 85% in the last year.

Although its price has surged higher, Orezone Gold's price-to-earnings (or "P/E") ratio of 9.2x might still make it look like a buy right now compared to the market in Canada, where around half of the companies have P/E ratios above 17x and even P/E's above 35x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

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With earnings growth that's superior to most other companies of late, Orezone Gold has been doing relatively well. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for Orezone Gold

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Orezone Gold.

How Is Orezone Gold's Growth Trending?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 73% last year. Still, EPS has barely risen at all from three years ago in total, which is not ideal. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Shifting to the future, estimates from the four analysts covering the company suggest earnings should grow by 44% each year over the next three years. With the market only predicted to deliver 12% per year, the company is positioned for a stronger earnings result.

With this information, we find it odd that Orezone Gold is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

What We Can Learn From Orezone Gold's P/E?

Orezone Gold's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of Orezone Gold's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

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

If you're unsure about the strength of Orezone Gold'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.