There's Reason For Concern Over GBLT Corp.'s (CVE:GBLT) Price

When close to half the companies in Canada have price-to-earnings ratios (or "P/E's") below 10x, you may consider GBLT Corp. (CVE:GBLT) as a stock to avoid entirely with its 79.4x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

GBLT certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It seems that many are expecting the strong earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for GBLT

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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 GBLT's earnings, revenue and cash flow.

How Is GBLT's Growth Trending?

There's an inherent assumption that a company should far outperform the market for P/E ratios like GBLT's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 70% last year. Still, EPS has barely risen at all from three years ago in total, which is not ideal. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

This is in contrast to the rest of the market, which is expected to grow by 8.1% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we find it concerning that GBLT is trading at a P/E higher than the market. 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

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that GBLT currently trades on a much higher than expected P/E since its recent three-year growth is lower than the wider market forecast. Right now we are increasingly uncomfortable with the high P/E as this earnings performance isn't likely to support such positive sentiment for long. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

It is also worth noting that we have found 4 warning signs for GBLT (3 are significant!) that you need to take into consideration.

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 a strong growth track record, trading on a P/E below 20x.

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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