CIBT Education Group Inc. (TSE:MBA) shareholders have had their patience rewarded with a 49% share price jump in the last month. Notwithstanding the latest gain, the annual share price return of 7.7% isn't as impressive.
Even after such a large jump in price, CIBT Education Group may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 8.5x, since almost half of all companies in Canada have P/E ratios greater than 17x and even P/E's higher than 40x 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.
CIBT Education Group hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on CIBT Education Group.
Is There Any Growth For CIBT Education Group?
The only time you'd be truly comfortable seeing a P/E as low as CIBT Education Group's is when the company's growth is on track to lag the market.
If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 38%. Even so, admirably EPS has lifted 189% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.
Shifting to the future, estimates from the one analyst covering the company suggest earnings growth is heading into negative territory, declining 24% over the next year. Meanwhile, the broader market is forecast to expand by 9.3%, which paints a poor picture.
With this information, we are not surprised that CIBT Education Group is trading at a P/E lower than the market. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.
The Key Takeaway
The latest share price surge wasn't enough to lift CIBT Education Group's P/E close to the market median. 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.
As we suspected, our examination of CIBT Education Group'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.
Plus, you should also learn about these 5 warning signs we've spotted with CIBT Education Group (including 1 which is significant).
If you're unsure about the strength of CIBT Education Group's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
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. 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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