Investors Appear Satisfied With Ensign Energy Services Inc.'s (TSE:ESI) Prospects
With a price-to-earnings (or "P/E") ratio of 63.8x Ensign Energy Services Inc. (TSE:ESI) may be sending very bearish signals at the moment, given that almost half of all companies in Canada have P/E ratios under 10x and even P/E's lower than 5x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.
With earnings growth that's inferior to most other companies of late, Ensign Energy Services has been relatively sluggish. One possibility is that the P/E is high because investors think this lacklustre earnings performance will improve markedly. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.
See our latest analysis for Ensign Energy Services
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Ensign Energy Services.
Is There Enough Growth For Ensign Energy Services?
In order to justify its P/E ratio, Ensign Energy Services would need to produce outstanding growth well in excess of 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. So it seems apparent to us that the company has struggled to grow earnings meaningfully over that time.
Shifting to the future, estimates from the five analysts covering the company suggest earnings should grow by 858% over the next year. That's shaping up to be materially higher than the 8.2% growth forecast for the broader market.
In light of this, it's understandable that Ensign Energy Services' P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.
The Key Takeaway
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.
We've established that Ensign Energy Services maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.
You need to take note of risks, for example - Ensign Energy Services has 3 warning signs (and 1 which is concerning) we think you should know about.
If these risks are making you reconsider your opinion on Ensign Energy Services, explore our interactive list of high quality stocks to get an idea of what else is out there.
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.
Join A Paid User Research Session
You’ll receive a US$30 Amazon Gift card for 1 hour of your time while helping us build better investing tools for the individual investors like yourself. Sign up here
