Little Excitement Around Guanajuato Silver Company Ltd.'s (CVE:GSVR) Earnings As Shares Take 26% Pounding

Guanajuato Silver Company Ltd. (CVE:GSVR) shares have retraced a considerable 26% in the last month, reversing a fair amount of their solid recent performance. Indeed, the recent drop has reduced its annual gain to a relatively sedate 5.3% over the last twelve months.

Even after such a large drop in price, Guanajuato Silver's price-to-earnings (or "P/E") ratio of -3.2x might still make it look like a strong buy right now compared to the market in Canada, where around half of the companies have P/E ratios above 12x and even P/E's above 26x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

For example, consider that Guanajuato Silver's financial performance has been poor lately as its 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.

See our latest analysis for Guanajuato Silver

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Guanajuato Silver's earnings, revenue and cash flow.

How Is Guanajuato Silver's Growth Trending?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Guanajuato Silver's to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 60%. This has erased any of its gains during the last three years, with practically no change in EPS being achieved in total. 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 11% over the next year, materially higher than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Guanajuato Silver's 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.

The Final Word

Guanajuato Silver's P/E looks about as weak as its stock price lately. 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.

We've established that Guanajuato Silver maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. 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.

Before you take the next step, you should know about the 3 warning signs for Guanajuato Silver that we have uncovered.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.