Despite an already strong run, Stanmore Resources Limited (ASX:SMR) shares have been powering on, with a gain of 25% in the last thirty days. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 35% in the last twelve months.

Even after such a large jump in price, Stanmore Resources may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 7.4x, since almost half of all companies in Australia have P/E ratios greater than 19x and even P/E's higher than 36x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

Stanmore Resources hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

View our latest analysis for Stanmore Resources

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Stanmore Resources.

Does Growth Match The Low P/E?

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

Retrospectively, the last year delivered a frustrating 59% decrease to the company's bottom line. Even so, admirably EPS has lifted 745% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

The Bottom Line On Stanmore Resources' P/E

Even after such a strong price move, Stanmore Resources' P/E still trails the rest of the market significantly. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Stanmore Resources (1 is a bit unpleasant!) that you need to be mindful of.

You might be able to find a better investment than Stanmore Resources. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.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.