Why Investors Shouldn't Be Surprised By SilverCrest Metals Inc.'s (TSE:SIL) Low P/E

When close to half the companies in Canada have price-to-earnings ratios (or "P/E's") above 12x, you may consider SilverCrest Metals Inc. (TSE:SIL) as an attractive investment with its 9.2x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Recent times have been pleasing for SilverCrest Metals as its earnings have risen in spite of the market's earnings going into reverse. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. If you 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 SilverCrest Metals

Keen to find out how analysts think SilverCrest Metals' future stacks up against the industry? In that case, our free report is a great place to start.

How Is SilverCrest Metals' Growth Trending?

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

Retrospectively, the last year delivered an exceptional 371% gain to the company's bottom line. Still, EPS has barely risen at all from three years ago in total, which is not ideal. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Shifting to the future, estimates from the five analysts covering the company suggest earnings growth is heading into negative territory, declining 7.2% over the next year. With the market predicted to deliver 12% growth , that's a disappointing outcome.

In light of this, it's understandable that SilverCrest Metals' P/E would sit below the majority of other companies. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Final Word

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that SilverCrest Metals maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

Plus, you should also learn about these 3 warning signs we've spotted with SilverCrest Metals (including 1 which shouldn't be ignored).

If these risks are making you reconsider your opinion on SilverCrest Metals, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.