Yahoo Finance Some Confidence Is Lacking In Bulletin Resources Limited (ASX:BNR) As Shares Slide 29%
The Bulletin Resources Limited (ASX:BNR) share price has softened a substantial 29% over the previous 30 days, handing back much of the gains the stock has made lately. Longer-term, the stock has been solid despite a difficult 30 days, gaining 25% in the last year.
In spite of the heavy fall in price, Bulletin Resources may still be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 62.5x, since almost half of all companies in Australia have P/E ratios under 18x and even P/E's lower than 9x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.
The recent earnings growth at Bulletin Resources would have to be considered satisfactory if not spectacular. One possibility is that the P/E is high because investors think this good earnings growth will be enough to outperform the broader market in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.
See our latest analysis for Bulletin Resources
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Bulletin Resources will help you shine a light on its historical performance.
What Are Growth Metrics Telling Us About The High P/E?
In order to justify its P/E ratio, Bulletin Resources would need to produce outstanding growth well in excess of the market.
Retrospectively, the last year delivered a decent 6.3% gain to the company's bottom line. Still, EPS has barely risen at all in aggregate from three years ago, which is not ideal. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.
This is in contrast to the rest of the market, which is expected to grow by 20% over the next year, materially higher than the company's recent medium-term annualised growth rates.
In light of this, it's alarming that Bulletin Resources' P/E sits above the majority of other companies. It seems most investors are ignoring the fairly limited recent growth rates and are hoping for a turnaround in the company's business prospects. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with recent growth rates.
The Key Takeaway
A significant share price dive has done very little to deflate Bulletin Resources' very lofty P/E. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.
Our examination of Bulletin Resources revealed its three-year earnings trends aren't impacting its high P/E anywhere near as much as we would have predicted, given they look worse than current market expectations. Right now we are increasingly uncomfortable with the high P/E as this earnings performance isn't likely to support such positive sentiment for long. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.
You should always think about risks. Case in point, we've spotted 5 warning signs for Bulletin Resources you should be aware of, and 1 of them doesn't sit too well with us.
Of course, you might also be able to find a better stock than Bulletin Resources. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
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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.
