Earnings Tell The Story For Silvercorp Metals Inc. (TSE:SVM) As Its Stock Soars 26%

Despite an already strong run, Silvercorp Metals Inc. (TSE:SVM) shares have been powering on, with a gain of 26% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 32% in the last year.

After such a large jump in price, given around half the companies in Canada have price-to-earnings ratios (or "P/E's") below 14x, you may consider Silvercorp Metals as a stock to potentially avoid with its 19.8x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.

Silvercorp Metals certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. It seems that many are expecting the company to continue defying the broader market adversity, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for Silvercorp Metals

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

Is There Enough Growth For Silvercorp Metals?

In order to justify its P/E ratio, Silvercorp Metals would need to produce impressive growth in excess of the market.

If we review the last year of earnings growth, the company posted a terrific increase of 76%. Still, incredibly EPS has fallen 23% in total from three years ago, which is quite disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Turning to the outlook, the next year should generate growth of 27% as estimated by the sole analyst watching the company. With the market only predicted to deliver 22%, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Silvercorp Metals' 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.

The Key Takeaway

Silvercorp Metals shares have received a push in the right direction, but its P/E is elevated too. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

As we suspected, our examination of Silvercorp Metals' analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

Plus, you should also learn about this 1 warning sign we've spotted with Silvercorp Metals.

You might be able to find a better investment than Silvercorp Metals. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.