Spartan Delta Corp.'s (TSE:SDE) Shares Bounce 27% But Its Business Still Trails The Market
Despite an already strong run, Spartan Delta Corp. (TSE:SDE) shares have been powering on, with a gain of 27% in the last thirty days. The last month tops off a massive increase of 180% in the last year.
Although its price has surged higher, Spartan Delta's price-to-earnings (or "P/E") ratio of 7x might still make it look like a buy right now compared to the market in Canada, where around half of the companies have P/E ratios above 12x and even P/E's above 27x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.
Spartan Delta has been doing a good job lately as it's been growing earnings at a solid pace. One possibility is that the P/E is low because investors think this respectable earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.
View our latest analysis for Spartan Delta
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 Spartan Delta's earnings, revenue and cash flow.
How Is Spartan Delta's Growth Trending?
In order to justify its P/E ratio, Spartan Delta would need to produce sluggish growth that's trailing the market.
If we review the last year of earnings growth, the company posted a terrific increase of 22%. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.
This is in contrast to the rest of the market, which is expected to grow by 14% over the next year, materially higher than the company's recent medium-term annualised growth rates.
With this information, we can see why Spartan Delta is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.
What We Can Learn From Spartan Delta's P/E?
Spartan Delta's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.
As we suspected, our examination of Spartan Delta revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.
You need to take note of risks, for example - Spartan Delta has 5 warning signs (and 1 which can't be ignored) we think you should know about.
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.
