Silvercorp Metals Inc. (TSE:SVM) Shares May Have Slumped 27% But Getting In Cheap Is Still Unlikely

Silvercorp Metals Inc. (TSE:SVM) shareholders won't be pleased to see that the share price has had a very rough month, dropping 27% and undoing the prior period's positive performance. Looking at the bigger picture, even after this poor month the stock is up 54% in the last year.

Even after such a large drop in price, you could still be forgiven for feeling indifferent about Silvercorp Metals' P/E ratio of 13.9x, since the median price-to-earnings (or "P/E") ratio in Canada is also close to 15x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Silvercorp Metals has been doing quite well of late. It might be that many expect the strong earnings performance to deteriorate like the rest, 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 Silvercorp Metals

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

How Is Silvercorp Metals' Growth Trending?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 65% last year. EPS has also lifted 22% in aggregate from three years ago, mostly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing earnings over that time.

Turning to the outlook, the next year should generate growth of 23% as estimated by the two analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 26%, which is noticeably more attractive.

In light of this, it's curious that Silvercorp Metals' P/E sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of earnings growth is likely to weigh down the shares eventually.

What We Can Learn From Silvercorp Metals' P/E?

Following Silvercorp Metals' share price tumble, its P/E is now hanging on to the median market P/E. 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.

We've established that Silvercorp Metals currently trades on a higher than expected P/E since its forecast growth is lower than the wider market. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Silvercorp Metals that you need to be mindful of.

If these risks are making you reconsider your opinion on Silvercorp Metals, 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.