Investors Aren't Buying Goldmoney Inc.'s (TSE:XAU) Earnings

With a price-to-earnings (or "P/E") ratio of 8.9x Goldmoney Inc. (TSE:XAU) may be sending bullish signals at the moment, given that almost half of all companies in Canada have P/E ratios greater than 15x and even P/E's higher than 32x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Goldmoney certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. 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.

View our latest analysis for Goldmoney

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Goldmoney's earnings, revenue and cash flow.

Is There Any Growth For Goldmoney?

In order to justify its P/E ratio, Goldmoney would need to produce sluggish growth that's trailing the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 354% last year. EPS has also lifted 27% in aggregate from three years ago, mostly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing earnings over that time.

Comparing that to the market, which is predicted to deliver 25% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

In light of this, it's understandable that Goldmoney's P/E sits below the majority of other companies. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

The Bottom Line On Goldmoney's P/E

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Goldmoney revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Goldmoney (1 is concerning!) that you need to be mindful of.

If you're unsure about the strength of Goldmoney's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.