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California Nanotechnologies Corp. (CVE:CNO) stock price rises 26% as investors are less pessimistic than expected

Those who hold California Nanotechnologies Corp. (CVE:CNO) shares would be relieved that the share price is up 26% over the past thirty days, but it needs to continue rising to repair the recent damage it has done to investors’ portfolios. The year-to-date gain is 138% after the recent surge, which has investors sitting up.

With the price soaring and nearly half of Canadian companies having a price-to-earnings (P/E) ratio below 14, you might want to consider California Nanotechnologies, with its P/E ratio of 39.5, as a stock to avoid altogether. However, it’s not wise to just take the P/E ratio at face value, as there might be an explanation for why it’s so high.

California Nanotechnologies has certainly done a great job of growing earnings at a very rapid pace recently. The P/E ratio is probably so high because investors believe this strong earnings growth will be enough to outperform the overall market in the near future. You really hope so, otherwise you’re paying a pretty high price for no particular reason.

Check out our latest analysis for California Nanotechnologies

pe-multiple-vs-industry
TSXV:CNO Price-to-Earnings Ratio Compared to Industry, June 30, 2024

Although there are no analyst estimates for California Nanotechnologies, take a look at these free Data-rich visualization to see how the company is performing in terms of profit, revenue and cash flow.

Is the growth appropriate for the high P/E ratio?

A P/E ratio as high as that of California Nanotechnologies would only be truly comfortable if the company’s growth is on track to significantly outperform the market.

Looking at earnings growth over the last year, the company has seen a tremendous 332% increase. However, the last three-year period has not been so great overall, showing no growth at all. Accordingly, shareholders would probably not have been too happy with the unstable medium-term growth rates.

Compared to the market, which is forecast to grow by 25 percent over the next twelve months, the company’s momentum is weaker based on recent medium-term annualized earnings figures.

With this in mind, it is alarming that California Nanotechnologies’ P/E ratio is higher than most other companies. It appears that many investors in the company are much more optimistic than its recent history would suggest, and are not willing to dump their shares at any price. Only the bravest would assume that these prices are sustainable, as a continuation of recent earnings trends will likely ultimately weigh heavily on the share price.

What can we learn from California Nanotechnologies’ P/E ratio?

California Nanotechnologies’ P/E ratio is as high as it has been in the last month. Generally, we prefer to use the price-to-earnings ratio only when determining what the market thinks about the overall health of a company.

We have found that California Nanotechnologies is currently trading at a significantly higher P/E than expected, as its recent growth over the past three years is below the overall market forecast. At the moment, we are increasingly uncomfortable with the high P/E, as this earnings trend is unlikely to sustain such positive sentiment for long. Unless recent medium-term conditions improve significantly, it is very difficult to accept these prices as reasonable.

We don’t want to spoil the fun too much, but we also noticed 5 warning signs for Californian nanotechnologies (2 make us uncomfortable!) that you need to be aware of.

If you are uncertain about the strength of California Nanotechnologies’ businesswhy not explore our interactive stock list with solid business fundamentals for some other companies you may have missed.

Valuation is complex, but we help simplify it.

Find out if Californian Nanotechnologies may be over- or undervalued by checking our comprehensive analysis which includes Fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View free analysis

Do you have feedback on this article? Are you concerned about the content? Get in touch directly from us. Alternatively, send an email to editorial-team (at) simplywallst.com.

This Simply Wall St article is of a general nature. We comment solely on historical data and analyst forecasts, using an unbiased methodology. Our articles do not constitute financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. Our goal is to provide you with long-term analysis based on fundamental data. Note that our analysis may not take into account the latest price-sensitive company announcements or qualitative materials. Simply Wall St does not hold any of the stocks mentioned.

Valuation is complex, but we help simplify it.

Find out if Californian Nanotechnologies may be over- or undervalued by checking our comprehensive analysis which includes Fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View free analysis

Do you have feedback on this article? Are you interested in the content? Contact us directly. Alternatively, send an email to [email protected]

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