Avino Silver & Gold Mines Ltd. (TSE:ASM) shares have had a really impressive month, gaining 27% after a shaky period beforehand. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 27% over that time.
Following the firm bounce in price, Avino Silver & Gold Mines may be sending very bearish signals at the moment with a price-to-earnings (or “P/E”) ratio of 59.7x, since almost half of all companies in Canada have P/E ratios under 13x and even P/E’s lower than 7x are not unusual. Nonetheless, we’d need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.
Avino Silver & Gold Mines has been struggling lately as its earnings have declined faster than most other companies. It might be that many expect the dismal earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be very nervous about the viability of the share price.
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What Are Growth Metrics Telling Us About The High P/E?
In order to justify its P/E ratio, Avino Silver & Gold Mines would need to produce outstanding growth well in excess of the market.
If we review the last year of earnings, dishearteningly the company’s profits fell to the tune of 73%. Unfortunately, that’s brought it right back to where it started three years ago with EPS growth being virtually non-existent overall during that time. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.
Turning to the outlook, the next year should generate growth of 275% as estimated by the four analysts watching the company. With the market only predicted to deliver 23%, the company is positioned for a stronger earnings result.
In light of this, it’s understandable that Avino Silver & Gold Mines’ P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.
The Bottom Line On Avino Silver & Gold Mines’ P/E
Shares in Avino Silver & Gold Mines have built up some good momentum lately, which has really inflated its P/E. 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.
As we suspected, our examination of Avino Silver & Gold Mines’ analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn’t great enough to justify a lower P/E ratio. 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 4 warning signs for Avino Silver & Gold Mines that you need to take into consideration.
If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.
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