Chemtrade Logistics Income Fund's (TSE:CHE.UN) Earnings Are Not Doing Enough For Some Investors
With a price-to-earnings (or "P/E") ratio of 8.2x Chemtrade Logistics Income Fund (TSE:CHE.UN) may be sending bullish signals at the moment, given that almost half of all companies in Canada have P/E ratios greater than 11x and even P/E's higher than 27x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.
With earnings growth that's inferior to most other companies of late, Chemtrade Logistics Income Fund has been relatively sluggish. The P/E is probably low because investors think this lacklustre earnings performance isn't going to get any better. If you still like the company, you'd be hoping earnings don't get any worse and that you could pick up some stock while it's out of favour.
Check out our latest analysis for Chemtrade Logistics Income Fund
Keen to find out how analysts think Chemtrade Logistics Income Fund's future stacks up against the industry? In that case, our free report is a great place to start.
Does Growth Match The Low P/E?
The only time you'd be truly comfortable seeing a P/E as low as Chemtrade Logistics Income Fund's is when the company's growth is on track to lag the market.
If we review the last year of earnings, the company posted a result that saw barely any deviation from a year ago. The longer-term trend has been no better as the company has no earnings growth to show for over the last three years either. Therefore, it's fair to say that earnings growth has definitely eluded the company recently.
Looking ahead now, EPS is anticipated to slump, contracting by 45% during the coming year according to the four analysts following the company. That's not great when the rest of the market is expected to grow by 8.3%.
In light of this, it's understandable that Chemtrade Logistics Income Fund's P/E would sit below the majority of other companies. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.
The Bottom Line On Chemtrade Logistics Income Fund's P/E
We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.
As we suspected, our examination of Chemtrade Logistics Income Fund's analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.
It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Chemtrade Logistics Income Fund (at least 1 which is concerning), and understanding these should be part of your investment process.
If you're unsure about the strength of Chemtrade Logistics Income Fund's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
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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