There's No Escaping Progressive Planet Solutions Inc.'s (CVE:PLAN) Muted Earnings Despite A 30% Share Price Rise
Progressive Planet Solutions Inc. (CVE:PLAN) shares have had a really impressive month, gaining 30% after a shaky period beforehand. The annual gain comes to 112% following the latest surge, making investors sit up and take notice.
Although its price has surged higher, given about half the companies in Canada have price-to-earnings ratios (or "P/E's") above 17x, you may still consider Progressive Planet Solutions as an attractive investment with its 13x 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 limited.
With earnings growth that's exceedingly strong of late, Progressive Planet Solutions 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.
View our latest analysis for Progressive Planet Solutions
How Is Progressive Planet Solutions' Growth Trending?
In order to justify its P/E ratio, Progressive Planet Solutions 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 135% last year. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.
Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 24% shows it's noticeably less attractive on an annualised basis.
With this information, we can see why Progressive Planet Solutions 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.
The Final Word
The latest share price surge wasn't enough to lift Progressive Planet Solutions' P/E close to the market median. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.
We've established that Progressive Planet Solutions maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.
Before you take the next step, you should know about the 2 warning signs for Progressive Planet Solutions that we have uncovered.
If these risks are making you reconsider your opinion on Progressive Planet Solutions, explore our interactive list of high quality stocks to get an idea of what else is out there.
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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.