Almadex Minerals Ltd.'s (CVE:DEX) Share Price Boosted 28% But Its Business Prospects Need A Lift Too

Despite an already strong run, Almadex Minerals Ltd. (CVE:DEX) shares have been powering on, with a gain of 28% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 30% in the last year.

Even after such a large jump in price, Almadex Minerals' price-to-earnings (or "P/E") ratio of 6.3x might still make it look like a buy right now compared to the market in Canada, where around half of the companies have P/E ratios above 11x and even P/E's above 24x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

For example, consider that Almadex Minerals' financial performance has been poor lately as it's earnings have been in decline. It might be that many expect the disappointing earnings performance to continue or accelerate, which has repressed the P/E. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

Our analysis indicates that DEX is potentially undervalued!

Although there are no analyst estimates available for Almadex Minerals, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Any Growth For Almadex Minerals?

In order to justify its P/E ratio, Almadex Minerals would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered a frustrating 66% decrease to the company's bottom line. 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.

This is in contrast to the rest of the market, which is expected to grow by 8.5% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Almadex Minerals' P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

What We Can Learn From Almadex Minerals' P/E?

Almadex Minerals' stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Almadex Minerals revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

You need to take note of risks, for example - Almadex Minerals has 4 warning signs (and 1 which is significant) we think you should know about.

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 P/E 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.