Santacruz Silver Mining Ltd. (CVE:SCZ) Stock Rockets 47% But Many Are Still Ignoring The Company

Santacruz Silver Mining Ltd. (CVE:SCZ) shares have continued their recent momentum with a 47% gain in the last month alone. The annual gain comes to 242% following the latest surge, making investors sit up and take notice.

In spite of the firm bounce in price, Santacruz Silver Mining may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 8.6x, since almost half of all companies in Canada have P/E ratios greater than 17x and even P/E's higher than 30x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

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Santacruz Silver Mining could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

View our latest analysis for Santacruz Silver Mining

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Santacruz Silver Mining.

Does Growth Match The Low P/E?

In order to justify its P/E ratio, Santacruz Silver Mining 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. Unfortunately, that's brought it right back to where it started three years ago with EPS growth being virtually non-existent overall during that time. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Shifting to the future, estimates from the sole analyst covering the company suggest earnings should grow by 27% over the next year. Meanwhile, the rest of the market is forecast to only expand by 17%, which is noticeably less attractive.

With this information, we find it odd that Santacruz Silver Mining is trading at a P/E lower than the market. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

What We Can Learn From Santacruz Silver Mining's P/E?

Despite Santacruz Silver Mining's shares building up a head of steam, its P/E still lags most other companies. 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.

Our examination of Santacruz Silver Mining's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

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

If these risks are making you reconsider your opinion on Santacruz Silver Mining, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.