After Leaping 29% Kraken Robotics Inc. (CVE:PNG) Shares Are Not Flying Under The Radar

Despite an already strong run, Kraken Robotics Inc. (CVE:PNG) shares have been powering on, with a gain of 29% in the last thirty days. The last 30 days were the cherry on top of the stock's 322% gain in the last year, which is nothing short of spectacular.

After such a large jump in price, Kraken Robotics' price-to-earnings (or "P/E") ratio of 78.8x 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 13x and even P/E's below 8x 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.

Kraken Robotics certainly has been doing a good job lately as it's been growing earnings more than most other companies. 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.

View our latest analysis for Kraken Robotics

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Is There Enough Growth For Kraken Robotics?

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

Retrospectively, the last year delivered an exceptional 407% gain to the company's bottom line. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Looking ahead now, EPS is anticipated to climb by 52% during the coming year according to the three analysts following the company. That's shaping up to be materially higher than the 23% growth forecast for the broader market.

With this information, we can see why Kraken Robotics is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

Kraken Robotics' P/E is flying high just like its stock has during the last month. 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.

As we suspected, our examination of Kraken Robotics' analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

It is also worth noting that we have found 2 warning signs for Kraken Robotics (1 is potentially serious!) that you need to take into consideration.

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.