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Is It Time To Buy CannTrust Holdings Inc (TSE:TRST) Based Off Its PE Ratio?

This analysis is intended to introduce important early concepts to people who are starting to invest and want to better understand how you can grow your money by investing in CannTrust Holdings Inc (TSE:TRST).

CannTrust Holdings Inc (TSE:TRST) is trading with a trailing P/E of 38.1x, which is lower than the industry average of 41.7x. Although some investors may jump to the conclusion that this is a great buying opportunity, understanding the assumptions behind the P/E ratio might change your mind. Today, I will break down what the P/E ratio is, how to interpret it and what to watch out for. View out our latest analysis for CannTrust Holdings

Breaking down the P/E ratio

TSX:TRST PE PEG Gauge June 25th 18
TSX:TRST PE PEG Gauge June 25th 18

A common ratio used for relative valuation is the P/E ratio. 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.

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P/E Calculation for TRST

Price-Earnings Ratio = Price per share ÷ Earnings per share

TRST Price-Earnings Ratio = CA$8.8 ÷ CA$0.231 = 38.1x

The P/E ratio isn’t a metric you view in isolation and only becomes useful when you compare it against other similar companies. We want to compare the stock’s P/E ratio to the average of companies that have similar characteristics as TRST, such as size and country of operation. A common peer group is companies that exist in the same industry, which is what I use. At 38.1x, TRST’s P/E is lower than its industry peers (41.7x). This implies that investors are undervaluing each dollar of TRST’s earnings. Therefore, according to this analysis, TRST is an under-priced stock.

Assumptions to watch out for

While our conclusion might prompt you to buy TRST immediately, there are two important assumptions you should be aware of. Firstly, our peer group contains companies that are similar to TRST. If this isn’t the case, the difference in P/E could be due to other factors. For example, if you compared lower risk firms with TRST, then investors would naturally value it at a lower price since it is a riskier investment. The second assumption that must hold true is that the stocks we are comparing TRST to are fairly valued by the market. If this does not hold, there is a possibility that TRST’s P/E is lower because our peer group is overvalued by the market.

What this means for you:

If your personal research into the stock confirms what the P/E ratio is telling you, it might be a good time to add more of TRST to your portfolio. But keep in mind that the usefulness of relative valuation depends on whether you are comfortable with making the assumptions I mentioned above. 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 highly recommend you to complete your research by taking a look at the following:

  1. Future Outlook: What are well-informed industry analysts predicting for TRST’s future growth? Take a look at our free research report of analyst consensus for TRST’s outlook.

  2. Financial Health: Is TRST’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.

  3. 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 pass 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.