5N Plus Inc.'s (TSE:VNP) Stock Retreats 25% But Earnings Haven't Escaped The Attention Of Investors

5N Plus Inc. (TSE:VNP) shares have had a horrible month, losing 25% after a relatively good period beforehand. Still, a bad month hasn't completely ruined the past year with the stock gaining 29%, which is great even in a bull market.

Although its price has dipped substantially, given close to half the companies in Canada have price-to-earnings ratios (or "P/E's") below 14x, you may still consider 5N Plus as a stock to avoid entirely with its 24.3x 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 so lofty.

Recent times haven't been advantageous for 5N Plus as its earnings have been falling quicker than most other companies. It might be that many expect the dismal earnings performance to recover substantially, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for 5N Plus

Want the full picture on analyst estimates for the company? Then our free report on 5N Plus will help you uncover what's on the horizon.

Does Growth Match The High P/E?

In order to justify its P/E ratio, 5N Plus would need to produce outstanding growth well in excess of the market.

Retrospectively, the last year delivered a frustrating 5.1% decrease to the company's bottom line. However, a few very strong years before that means that it was still able to grow EPS by an impressive 338% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Looking ahead now, EPS is anticipated to climb by 58% during the coming year according to the five analysts following the company. That's shaping up to be materially higher than the 20% growth forecast for the broader market.

In light of this, it's understandable that 5N Plus' 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 Final Word

5N Plus' shares may have retreated, but its P/E is still flying high. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that 5N Plus maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

It is also worth noting that we have found 1 warning sign for 5N Plus that you need to take into consideration.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.