Earnings Working Against Impala Platinum Holdings Limited's (JSE:IMP) Share Price Following 29% Dive

Impala Platinum Holdings Limited (JSE:IMP) shareholders that were waiting for something to happen have been dealt a blow with a 29% share price drop in the last month. Indeed, the recent drop has reduced its annual gain to a relatively sedate 2.3% over the last twelve months.

Following the heavy fall in price, given close to half the companies in South Africa have price-to-earnings ratios (or "P/E's") above 12x, you may consider Impala Platinum Holdings as a highly attractive investment with its 3x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

Impala Platinum Holdings certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for Impala Platinum Holdings

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Impala Platinum Holdings.

Is There Any Growth For Impala Platinum Holdings?

Impala Platinum Holdings' P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.

If we review the last year of earnings growth, the company posted a terrific increase of 190%. Still, EPS has barely risen at all from three years ago in total, which is not ideal. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Turning to the outlook, the next year should generate growth of 3.2% as estimated by the six analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 30%, which is noticeably more attractive.

With this information, we can see why Impala Platinum Holdings is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On Impala Platinum Holdings' P/E

Shares in Impala Platinum Holdings have plummeted and its P/E is now low enough to touch the ground. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Impala Platinum Holdings maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

We don't want to rain on the parade too much, but we did also find 4 warning signs for Impala Platinum Holdings (1 is significant!) that you need to be mindful of.

You might be able to find a better investment than Impala Platinum Holdings. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a P/E below 20x (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.
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