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It's A Story Of Risk Vs Reward With Chorus Aviation Inc. (TSE:CHR)

Simply Wall St
·4 mins read

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With a price-to-earnings (or "P/E") ratio of 4.7x Chorus Aviation Inc. (TSE:CHR) may be sending very bullish signals at the moment, given that almost half of all companies in Canada have P/E ratios greater than 14x and even P/E's higher than 33x are not unusual. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Chorus Aviation could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. 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.

Check out our latest analysis for Chorus Aviation

Does Chorus Aviation Have A Relatively High Or Low P/E For Its Industry?

An inspection of average P/E's throughout Chorus Aviation's industry may help to explain its particularly low P/E ratio. You'll notice in the figure below that P/E ratios in the Airlines industry are also lower than the market. So we'd say there could be some merit in the premise that the company's ratio being shaped by its industry at this time. In the context of the Airlines industry's current setting, most of its constituents' P/E's would be expected to be toned down. Ultimately though, it's going to be the fundamentals of the business like earnings and growth that count most.

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If you'd like to see what analysts are forecasting going forward, you should check out our free report on Chorus Aviation.

Is There Any Growth For Chorus Aviation?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Chorus Aviation's to be considered reasonable.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 23%. This means it has also seen a slide in earnings over the longer-term as EPS is down 24% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 21% per annum during the coming three years according to the seven analysts following the company. That's shaping up to be similar to the 22% per year growth forecast for the broader market.

In light of this, it's peculiar that Chorus Aviation's P/E sits below the majority of other companies. It may be that most investors are not convinced the company can achieve future growth expectations.

The Final Word

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

Our examination of Chorus Aviation's analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide more support to the share price.

And what about other risks? Every company has them, and we've spotted 4 warning signs for Chorus Aviation (of which 2 are potentially serious!) you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a P/E ratio below 20x).

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com.