Despite an already strong run, Teekay Tankers Ltd. (NYSE:TNK) shares have been powering on, with a gain of 28% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 95% in the last year.

Although its price has surged higher, Teekay Tankers may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 5.2x, since almost half of all companies in the United States have P/E ratios greater than 18x and even P/E's higher than 32x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

Teekay Tankers 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 not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

What Are Growth Metrics Telling Us About The Low P/E?

The only time you'd be truly comfortable seeing a P/E as depressed as Teekay Tankers' is when the company's growth is on track to lag the market decidedly.

Retrospectively, the last year delivered an exceptional 18% gain to the company's bottom line. 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 three years should bring diminished returns, with earnings decreasing 5.7% each year as estimated by the seven analysts watching the company. That's not great when the rest of the market is expected to grow by 9.9% per year.

In light of this, it's understandable that Teekay Tankers' 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. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Bottom Line On Teekay Tankers' P/E

Shares in Teekay Tankers are going to need a lot more upward momentum to get the company's P/E out of its slump. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Teekay Tankers maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Before you settle on your opinion, we've discovered 2 warning signs for Teekay Tankers (1 can't be ignored!) that you should be aware of.

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

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