Mountfield Group Plc (LON:MOGP) Might Not Be As Mispriced As It Looks After Plunging 35%
To the annoyance of some shareholders, Mountfield Group Plc (LON:MOGP) shares are down a considerable 35% in the last month, which continues a horrid run for the company. For any long-term shareholders, the last month ends a year to forget by locking in a 66% share price decline.
Following the heavy fall in price, Mountfield Group may be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 2.1x, since almost half of all companies in the United Kingdom have P/E ratios greater than 18x and even P/E's higher than 37x are not unusual. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.
For example, consider that Mountfield Group's financial performance has been poor lately as it's earnings have been in decline. One possibility is that the P/E is low because investors think the company won't do enough to avoid underperforming the broader market in the near future. 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.
See our latest analysis for Mountfield Group
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Mountfield Group will help you shine a light on its historical performance.
Does Growth Match The Low P/E?
The only time you'd be truly comfortable seeing a P/E as depressed as Mountfield Group's is when the company's growth is on track to lag the market decidedly.
Retrospectively, the last year delivered a frustrating 2.4% decrease to the company's bottom line. Even so, admirably EPS has lifted 100% in aggregate from three years ago, notwithstanding the last 12 months. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.
This is in contrast to the rest of the market, which is expected to grow by 2.7% over the next year, materially lower than the company's recent medium-term annualised growth rates.
In light of this, it's peculiar that Mountfield Group's P/E sits below the majority of other companies. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.
The Key Takeaway
Having almost fallen off a cliff, Mountfield Group's share price has pulled its P/E way down as well. 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.
We've established that Mountfield Group currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.
Plus, you should also learn about these 2 warning signs we've spotted with Mountfield Group (including 1 which is a bit concerning).
Of course, you might also be able to find a better stock than Mountfield Group. So you may wish to see this free collection of other companies that sit on P/E's below 20x and have grown earnings strongly.
This article by Simply Wall St is general in nature. 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.
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