Yahoo Finance Pulse Oil Corp. (CVE:PUL) May Have Run Too Fast Too Soon With Recent 29% Price Plummet
Pulse Oil Corp. (CVE:PUL) shareholders that were waiting for something to happen have been dealt a blow with a 29% share price drop in the last month. To make matters worse, the recent drop has wiped out a year's worth of gains with the share price now back where it started a year ago.
In spite of the heavy fall in price, given around half the companies in Canada have price-to-earnings ratios (or "P/E's") below 10x, you may still consider Pulse Oil as a stock to potentially avoid with its 16.4x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.
Earnings have risen firmly for Pulse Oil recently, which is pleasing to see. One possibility is that the P/E is high because investors think this respectable earnings growth will be enough to outperform the broader market in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.
See our latest analysis for Pulse Oil
We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Pulse Oil's earnings, revenue and cash flow.
How Is Pulse Oil's Growth Trending?
The only time you'd be truly comfortable seeing a P/E as high as Pulse Oil's is when the company's growth is on track to outshine the market.
If we review the last year of earnings growth, the company posted a worthy increase of 11%. Although, the latest three year period in total hasn't been as good as it didn't manage to provide any growth at all. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.
Comparing that to the market, which is predicted to deliver 8.5% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.
In light of this, it's alarming that Pulse Oil's P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.
The Key Takeaway
There's still some solid strength behind Pulse Oil's P/E, if not its share price lately. 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 Pulse Oil currently trades on a much higher than expected P/E since its recent three-year growth is lower than the wider market forecast. When we see weak earnings with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.
There are also other vital risk factors to consider and we've discovered 5 warning signs for Pulse Oil (3 shouldn't be ignored!) that you should be aware of before investing here.
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.
Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.
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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