Thor Explorations Ltd. (CVE:THX) Surges 25% Yet Its Low P/E Is No Reason For Excitement

Despite an already strong run, Thor Explorations Ltd. (CVE:THX) shares have been powering on, with a gain of 25% in the last thirty days. The last 30 days were the cherry on top of the stock's 402% gain in the last year, which is nothing short of spectacular.

In spite of the firm bounce in price, Thor Explorations' price-to-earnings (or "P/E") ratio of 4.8x 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 17x and even P/E's above 35x are quite common. 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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With earnings growth that's superior to most other companies of late, Thor Explorations has been doing relatively well. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. 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 out of favour.

See our latest analysis for Thor Explorations

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

Does Growth Match The Low P/E?

In order to justify its P/E ratio, Thor Explorations would need to produce anemic growth that's substantially trailing the market.

If we review the last year of earnings growth, the company posted a terrific increase of 309%. Pleasingly, EPS has also lifted 887% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Turning to the outlook, the next three years should bring diminished returns, with earnings decreasing 15% per annum as estimated by the two analysts watching the company. That's not great when the rest of the market is expected to grow by 12% per year.

In light of this, it's understandable that Thor Explorations' P/E would sit below the majority of other companies. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. 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. 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 Thor Explorations maintains its low P/E on the weakness of its forecast for sliding earnings, 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. It's hard to see the share price rising strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 2 warning signs for Thor Explorations that you should be aware of.

If these risks are making you reconsider your opinion on Thor Explorations, 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.