Market Might Still Lack Some Conviction On Orezone Gold Corporation (TSE:ORE) Even After 31% Share Price Boost

Orezone Gold Corporation (TSE:ORE) shares have continued their recent momentum with a 31% gain in the last month alone. Looking further back, the 24% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

In spite of the firm bounce in price, Orezone Gold may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 7.3x, since almost half of all companies in Canada have P/E ratios greater than 15x and even P/E's higher than 28x are not unusual. 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 its earnings growth in positive territory compared to the declining earnings of most other companies, Orezone Gold has been doing quite well of late. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

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Is There Any Growth For Orezone Gold?

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

Retrospectively, the last year delivered a decent 14% gain to the company's bottom line. Still, EPS has barely risen at all in aggregate from three years ago, which is not ideal. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Turning to the outlook, the next year should generate growth of 61% as estimated by the three analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 22%, which is noticeably less attractive.

In light of this, it's peculiar that Orezone Gold's P/E sits below the majority of other companies. 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?

Despite Orezone Gold's shares building up a head of steam, its P/E still lags most other companies. 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. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Before you settle on your opinion, we've discovered 1 warning sign for Orezone Gold that you should be aware of.

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.