Earnings Working Against Victoria Gold Corp.'s (TSE:VGCX) Share Price Following 35% Dive

The Victoria Gold Corp. (TSE:VGCX) share price has fared very poorly over the last month, falling by a substantial 35%. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 49% in that time.

Following the heavy fall in price, given close to half the companies in Canada have price-to-earnings ratios (or "P/E's") above 11x, you may consider Victoria Gold as an attractive investment with its 6.4x 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 limited.

While the market has experienced earnings growth lately, Victoria Gold's earnings have gone into reverse gear, which is not great. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Check out our latest analysis for Victoria Gold

Want the full picture on analyst estimates for the company? Then our free report on Victoria Gold will help you uncover what's on the horizon.

Is There Any Growth For Victoria Gold?

The only time you'd be truly comfortable seeing a P/E as low as Victoria Gold's is when the company's growth is on track to lag the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 1.3%. At least EPS has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 5.2% per annum as estimated by the twin analysts watching the company. With the market predicted to deliver 9.5% growth per annum, the company is positioned for a weaker earnings result.

With this information, we can see why Victoria Gold is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Final Word

Victoria Gold's P/E has taken a tumble along with its share price. 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.

As we suspected, our examination of Victoria Gold's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Before you settle on your opinion, we've discovered 3 warning signs for Victoria Gold that you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies that have grown earnings strongly and trade on P/E's below 20x.

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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.