AutoCanada Inc.'s (TSE:ACQ) 36% Price Boost Is Out Of Tune With Earnings

AutoCanada Inc. (TSE:ACQ) shares have continued their recent momentum with a 36% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 52%.

Since its price has surged higher, AutoCanada may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 18.6x, since almost half of all companies in Canada have P/E ratios under 16x and even P/E's lower than 9x are not unusual. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

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AutoCanada could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. If not, then existing shareholders may be extremely nervous about the viability of the share price.

Check out our latest analysis for AutoCanada

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

Does Growth Match The High P/E?

AutoCanada's P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 43%. This means it has also seen a slide in earnings over the longer-term as EPS is down 71% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

What We Can Learn From AutoCanada's P/E?

AutoCanada's P/E is getting right up there since its shares have risen strongly. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We don't want to rain on the parade too much, but we did also find 4 warning signs for AutoCanada (2 can't be ignored!) that you need to be mindful of.

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.