Thor Explorations Ltd. (CVE:THX) Shares Fly 32% But Investors Aren't Buying For Growth

Despite an already strong run, Thor Explorations Ltd. (CVE:THX) shares have been powering on, with a gain of 32% in the last thirty days. The last month tops off a massive increase of 233% in the last year.

Although its price has surged higher, Thor Explorations may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 3.5x, since almost half of all companies in Canada have P/E ratios greater than 17x and even P/E's higher than 32x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

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Recent times have been advantageous for Thor Explorations as its earnings have been rising faster than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for Thor Explorations

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

How Is Thor Explorations' Growth Trending?

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

Retrospectively, the last year delivered an exceptional 309% gain to the company's bottom line. The latest three year period has also seen an excellent 887% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Shifting to the future, estimates from the two analysts covering the company suggest earnings growth is heading into negative territory, declining 15% per year over the next three years. That's not great when the rest of the market is expected to grow by 10% per annum.

In light of this, it's understandable that Thor Explorations' P/E would sit below the majority of other companies. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

What We Can Learn From Thor Explorations' P/E?

Shares in Thor Explorations are going to need a lot more upward momentum to get the company's P/E out of its slump. 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 Thor Explorations maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

Plus, you should also learn about these 2 warning signs we've spotted with Thor Explorations.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and 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.