Yahoo Finance Is Corsa Coal Corp’s (CVE:CSO) PE Ratio A Signal To Buy For Investors?
I am writing today to help inform people who are new to the stock market and want to learn about the link between company’s fundamentals and stock market performance.
Corsa Coal Corp (CVE:CSO) is currently trading at a trailing P/E of 1.4x, which is lower than the industry average of 10.6x. While CSO might seem like an attractive stock to buy, it is important to understand the assumptions behind the P/E ratio before you make any investment decisions. Today, I will break down what the P/E ratio is, how to interpret it and what to watch out for.
View our latest analysis for Corsa Coal
Breaking down the Price-Earnings ratio
P/E is a popular ratio used for relative valuation. It compares a stock’s price per share to the stock’s earnings per share. A more intuitive way of understanding the P/E ratio is to think of it as how much investors are paying for each dollar of the company’s earnings.
P/E Calculation for CSO
Price-Earnings Ratio = Price per share ÷ Earnings per share
CSO Price-Earnings Ratio = $0.93 ÷ $0.655 = 1.4x
On its own, the P/E ratio doesn’t tell you much; however, it becomes extremely useful when you compare it with other similar companies. Our goal is to compare the stock’s P/E ratio to the average of companies that have similar attributes to CSO, such as company lifetime and products sold. A common peer group is companies that exist in the same industry, which is what I use. CSO’s P/E of 1.4x is lower than its industry peers (10.6x), which implies that each dollar of CSO’s earnings is being undervalued by investors. This multiple is a median of profitable companies of 24 Metals and Mining companies in CA including Winston Resources, Sherritt International and New World Resource. Therefore, according to this analysis, CSO is an under-priced stock.
Assumptions to be aware of
While our conclusion might prompt you to buy CSO immediately, there are two important assumptions you should be aware of. Firstly, our peer group contains companies that are similar to CSO. If this isn’t the case, the difference in P/E could be due to other factors. For example, if you are comparing lower risk firms with CSO, then its P/E would naturally be lower than its peers, as investors would value those with lower risk at a higher price. The second assumption that must hold true is that the stocks we are comparing CSO to are fairly valued by the market. If this is violated, CSO’s P/E may be lower than its peers as they are actually overvalued by investors.
What this means for you:
You may have already conducted fundamental analysis on the stock as a shareholder, so its current undervaluation could signal a good buying opportunity to increase your exposure to CSO. Now that you understand the ins and outs of the PE metric, you should know to bear in mind its limitations before you make an investment decision. Remember that basing your investment decision off one metric alone is certainly not sufficient. There are many things I have not taken into account in this article and the PE ratio is very one-dimensional. If you have not done so already, I urge you to complete your research by taking a look at the following:
Financial Health: Are CSO’s operations financially sustainable? Balance sheets can be hard to analyze, which is why we’ve done it for you. Check out our financial health checks here.
Past Track Record: Has CSO been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of CSO’s historicals for more clarity.
Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.
To help readers see past the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price-sensitive company announcements.
The author is an independent contributor and at the time of publication had no position in the stocks mentioned. For errors that warrant correction please contact the editor at editorial-team@simplywallst.com.
