Investors Appear Satisfied With Groupe Dynamite Inc.'s (TSE:GRGD) Prospects As Shares Rocket 25%

Despite an already strong run, Groupe Dynamite Inc. (TSE:GRGD) shares have been powering on, with a gain of 25% in the last thirty days. The last month tops off a massive increase of 277% in the last year.

After such a large jump in price, Groupe Dynamite's price-to-earnings (or "P/E") ratio of 42x might make it look like a strong sell right now compared to the market in Canada, where around half of the companies have P/E ratios below 16x and even P/E's below 9x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

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With earnings growth that's superior to most other companies of late, Groupe Dynamite has been doing relatively well. The P/E is probably high because investors think this strong earnings performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Groupe Dynamite

Keen to find out how analysts think Groupe Dynamite's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Groupe Dynamite's Growth Trending?

Groupe Dynamite's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

If we review the last year of earnings growth, the company posted a terrific increase of 54%. The latest three year period has also seen an excellent 1,268% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Shifting to the future, estimates from the eleven analysts covering the company suggest earnings should grow by 30% over the next year. That's shaping up to be materially higher than the 23% growth forecast for the broader market.

In light of this, it's understandable that Groupe Dynamite's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

Shares in Groupe Dynamite have built up some good momentum lately, which has really inflated its P/E. 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've established that Groupe Dynamite maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for Groupe Dynamite with six simple checks will allow you to discover any risks that could be an issue.

You might be able to find a better investment than Groupe Dynamite. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.