Yahoo Finance What Is Dynacor Gold Mines's (TSE:DNG) P/E Ratio After Its Share Price Tanked?
Unfortunately for some shareholders, the Dynacor Gold Mines (TSE:DNG) share price has dived 39% in the last thirty days. That drop has capped off a tough year for shareholders, with the share price down 36% in that time.
All else being equal, a share price drop should make a stock more attractive to potential investors. In the long term, share prices tend to follow earnings per share, but in the short term prices bounce around in response to short term factors (which are not always obvious). The implication here is that long term investors have an opportunity when expectations of a company are too low. Perhaps the simplest way to get a read on investors' expectations of a business is to look at its Price to Earnings Ratio (PE Ratio). A high P/E ratio means that investors have a high expectation about future growth, while a low P/E ratio means they have low expectations about future growth.
View our latest analysis for Dynacor Gold Mines
How Does Dynacor Gold Mines's P/E Ratio Compare To Its Peers?
Dynacor Gold Mines's P/E of 5.30 indicates relatively low sentiment towards the stock. We can see in the image below that the average P/E (9.5) for companies in the metals and mining industry is higher than Dynacor Gold Mines's P/E.
Its relatively low P/E ratio indicates that Dynacor Gold Mines shareholders think it will struggle to do as well as other companies in its industry classification. Since the market seems unimpressed with Dynacor Gold Mines, it's quite possible it could surprise on the upside. It is arguably worth checking if insiders are buying shares, because that might imply they believe the stock is undervalued.
How Growth Rates Impact P/E Ratios
Probably the most important factor in determining what P/E a company trades on is the earnings growth. That's because companies that grow earnings per share quickly will rapidly increase the 'E' in the equation. And in that case, the P/E ratio itself will drop rather quickly. Then, a lower P/E should attract more buyers, pushing the share price up.
Most would be impressed by Dynacor Gold Mines earnings growth of 12% in the last year. And its annual EPS growth rate over 3 years is 15%. With that performance, you might expect an above average P/E ratio. In contrast, EPS has decreased by 5.8%, annually, over 5 years.
Don't Forget: The P/E Does Not Account For Debt or Bank Deposits
One drawback of using a P/E ratio is that it considers market capitalization, but not the balance sheet. So it won't reflect the advantage of cash, or disadvantage of debt. Hypothetically, a company could reduce its future P/E ratio by spending its cash (or taking on debt) to achieve higher earnings.
Such spending might be good or bad, overall, but the key point here is that you need to look at debt to understand the P/E ratio in context.
So What Does Dynacor Gold Mines's Balance Sheet Tell Us?
Dynacor Gold Mines has net cash of US$12m. This is fairly high at 42% of its market capitalization. That might mean balance sheet strength is important to the business, but should also help push the P/E a bit higher than it would otherwise be.
The Bottom Line On Dynacor Gold Mines's P/E Ratio
Dynacor Gold Mines has a P/E of 5.3. That's below the average in the CA market, which is 9.9. Not only should the net cash position reduce risk, but the recent growth has been impressive. The relatively low P/E ratio implies the market is pessimistic. What can be absolutely certain is that the market has become more pessimistic about Dynacor Gold Mines over the last month, with the P/E ratio falling from 8.7 back then to 5.3 today. For those who prefer to invest with the flow of momentum, that might be a bad sign, but for deep value investors this stock might justify some research.
Investors have an opportunity when market expectations about a stock are wrong. If the reality for a company is not as bad as the P/E ratio indicates, then the share price should increase as the market realizes this. Although we don't have analyst forecasts you might want to assess this data-rich visualization of earnings, revenue and cash flow.
Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with modest (or no) debt, trading on a P/E below 20.
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.
