The Pivotree Inc. (CVE:PVT) share price has fared very poorly over the last month, falling by a substantial 27%. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 29% in that time.
Since its price has dipped substantially, Pivotree's price-to-earnings (or "P/E") ratio of -8.9x might make it look like a strong buy right now compared to the market in Canada, where around half of the companies have P/E ratios above 12x and even P/E's above 26x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.
Pivotree certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. 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 Pivotree
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Pivotree.
How Is Pivotree's Growth Trending?
There's an inherent assumption that a company should far underperform the market for P/E ratios like Pivotree's to be considered reasonable.
Taking a look back first, we see that the company grew earnings per share by an impressive 45% last year. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.
Turning to the outlook, the next year should generate growth of 78% as estimated by the four analysts watching the company. With the market only predicted to deliver 11%, the company is positioned for a stronger earnings result.
In light of this, it's peculiar that Pivotree's P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.
The Bottom Line On Pivotree's P/E
Shares in Pivotree have plummeted and its P/E is now low enough to touch the ground. 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.