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Gold Fields Limited (JSE:GFI) Not Lagging Market On Growth Or Pricing

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With a price-to-earnings (or "P/E") ratio of 16.8x Gold Fields Limited (JSE:GFI) may be sending very bearish signals at the moment, given that almost half of all companies in South Africa have P/E ratios under 8x and even P/E's lower than 5x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

As an illustration, earnings have deteriorated at Gold Fields over the last year, which is not ideal at all. One possibility is that the P/E is high because investors think the company will still do enough to outperform the broader market in the near future. If not, then existing shareholders may be quite nervous about the viability of the share price.

Check out our latest analysis for Gold Fields

pe-multiple-vs-industry
JSE:GFI Price to Earnings Ratio vs Industry August 28th 2023

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Gold Fields will help you shine a light on its historical performance.

How Is Gold Fields' Growth Trending?

The only time you'd be truly comfortable seeing a P/E as steep as Gold Fields' is when the company's growth is on track to outshine the market decidedly.

Retrospectively, the last year delivered a frustrating 28% decrease to the company's bottom line. However, a few very strong years before that means that it was still able to grow EPS by an impressive 155% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 3.5% shows it's noticeably more attractive on an annualised basis.

In light of this, it's understandable that Gold Fields' P/E sits above the majority of other companies. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

The Key Takeaway

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 Gold Fields maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, as expected. Right now shareholders are comfortable with the P/E as they are quite confident earnings aren't under threat. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.


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