Improved Earnings Required Before AltynGold plc (LON:ALTN) Stock's 26% Jump Looks Justified

AltynGold plc (LON:ALTN) shares have continued their recent momentum with a 26% gain in the last month alone. The last month tops off a massive increase of 249% in the last year.

Although its price has surged higher, given about half the companies in the United Kingdom have price-to-earnings ratios (or "P/E's") above 17x, you may still consider AltynGold as a highly attractive investment with its 6.9x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

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With earnings growth that's exceedingly strong of late, AltynGold has been doing very well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. 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.

Check out our latest analysis for AltynGold

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 AltynGold's earnings, revenue and cash flow.

What Are Growth Metrics Telling Us About The Low P/E?

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

Retrospectively, the last year delivered an exceptional 133% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 44% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 18% shows it's noticeably less attractive on an annualised basis.

With this information, we can see why AltynGold is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

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

AltynGold's recent share price jump still sees its P/E sitting firmly flat on the ground. 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.

As we suspected, our examination of AltynGold revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

You always need to take note of risks, for example - AltynGold has 2 warning signs we think you should be aware of.

You might be able to find a better investment than AltynGold. 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.