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How Does Mueller Industries's (NYSE:MLI) P/E Compare To Its Industry, After Its Big Share Price Gain?

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Simply Wall St
·4 min read
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Those holding Mueller Industries (NYSE:MLI) shares must be pleased that the share price has rebounded 32% in the last thirty days. But unfortunately, the stock is still down by 26% over a quarter. But shareholders may not all be feeling jubilant, since the share price is still down 26% in the last year.

Assuming no other changes, a sharply higher share price makes a stock less attractive to potential buyers. While the market sentiment towards a stock is very changeable, in the long run, the share price will tend to move in the same direction as earnings per share. So some would prefer to hold off buying when there is a lot of optimism towards a stock. Perhaps the simplest way to get a read on investors' expectations of a business is to look at its Price to Earnings Ratio (PE Ratio). A high P/E implies that investors have high expectations of what a company can achieve compared to a company with a low P/E ratio.

See our latest analysis for Mueller Industries

How Does Mueller Industries's P/E Ratio Compare To Its Peers?

We can tell from its P/E ratio of 13.15 that sentiment around Mueller Industries isn't particularly high. The image below shows that Mueller Industries has a lower P/E than the average (15.8) P/E for companies in the machinery industry.

NYSE:MLI Price Estimation Relative to Market April 17th 2020
NYSE:MLI Price Estimation Relative to Market April 17th 2020

This suggests that market participants think Mueller Industries will underperform other companies in its industry. Since the market seems unimpressed with Mueller Industries, it's quite possible it could surprise on the upside. You should delve deeper. I like to check if company insiders have been buying or selling.

How Growth Rates Impact P/E Ratios

Probably the most important factor in determining what P/E a company trades on is the earnings growth. When earnings grow, the 'E' increases, over time. Therefore, even if you pay a high multiple of earnings now, that multiple will become lower in the future. And as that P/E ratio drops, the company will look cheap, unless its share price increases.

Mueller Industries's earnings per share fell by 1.4% in the last twelve months.

Remember: P/E Ratios Don't Consider The Balance Sheet

Don't forget that the P/E ratio considers market capitalization. In other words, it does not consider any debt or cash that the company may have on the balance sheet. Hypothetically, a company could reduce its future P/E ratio by spending its cash (or taking on debt) to achieve higher earnings.

Such expenditure might be good or bad, in the long term, but the point here is that the balance sheet is not reflected by this ratio.

Is Debt Impacting Mueller Industries's P/E?

Mueller Industries has net debt worth 21% of its market capitalization. This could bring some additional risk, and reduce the number of investment options for management; worth remembering if you compare its P/E to businesses without debt.

The Verdict On Mueller Industries's P/E Ratio

Mueller Industries trades on a P/E ratio of 13.2, which is fairly close to the US market average of 13.2. When you consider the lack of EPS growth last year (along with some debt), it seems the market is optimistic about the future for the business. What we know for sure is that investors have become more excited about Mueller Industries recently, since they have pushed its P/E ratio from 10.0 to 13.2 over the last month. If you like to buy stocks that have recently impressed the market, then this one might be a candidate; but if you prefer to invest when there is 'blood in the streets', then you may feel the opportunity has passed.

Investors have an opportunity when market expectations about a stock are wrong. As value investor Benjamin Graham famously said, 'In the short run, the market is a voting machine but in the long run, it is a weighing machine. So this free report on the analyst consensus forecasts could help you make a master move on this stock.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with modest (or no) debt, trading on a P/E below 20.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.