Optimistic Investors Push Mako Mining Corp. (CVE:MKO) Shares Up 27% But Growth Is Lacking

Mako Mining Corp. (CVE:MKO) shareholders would be excited to see that the share price has had a great month, posting a 27% gain and recovering from prior weakness. The last 30 days bring the annual gain to a very sharp 34%.

Even after such a large jump in price, there still wouldn't be many who think Mako Mining's price-to-earnings (or "P/E") ratio of 14.6x is worth a mention when the median P/E in Canada is similar at about 15x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Our free stock report includes 2 warning signs investors should be aware of before investing in Mako Mining. Read for free now.

With earnings growth that's exceedingly strong of late, Mako Mining has been doing very well. The P/E is probably moderate because investors think this strong earnings growth might not be enough to outperform the broader market in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

Check out our latest analysis for Mako Mining

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 Mako Mining's earnings, revenue and cash flow.

How Is Mako Mining's Growth Trending?

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

Retrospectively, the last year delivered an exceptional 157% gain to the company's bottom line. Pleasingly, EPS has also lifted 60% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

This is in contrast to the rest of the market, which is expected to grow by 20% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we find it interesting that Mako Mining is trading at a fairly similar P/E to the market. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. They may be setting themselves up for future disappointment if the P/E falls to levels more in line with recent growth rates.

The Final Word

Its shares have lifted substantially and now Mako Mining's P/E is also back up to the market median. 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 Mako Mining currently trades on a higher than expected P/E since its recent three-year growth is lower than the wider market forecast. When we see weak earnings with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Mako Mining that you should be aware of.

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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