Mayville Engineering Company, Inc.'s (NYSE:MEC) P/E Is Still On The Mark Following 26% Share Price Bounce
The Mayville Engineering Company, Inc. (NYSE:MEC) share price has done very well over the last month, posting an excellent gain of 26%. But not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 49% in the last twelve months.
Following the firm bounce in price, given close to half the companies in the United States have price-to-earnings ratios (or "P/E's") below 14x, you may consider Mayville Engineering Company as a stock to avoid entirely with its 62.9x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.
Mayville Engineering Company could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be extremely nervous about the viability of the share price.
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What Are Growth Metrics Telling Us About The High P/E?
Mayville Engineering Company's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.
Retrospectively, the last year delivered a frustrating 61% decrease to the company's bottom line. Unfortunately, that's brought it right back to where it started three years ago with EPS growth being virtually non-existent overall during that time. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.
Looking ahead now, EPS is anticipated to climb by 687% during the coming year according to the four analysts following the company. That's shaping up to be materially higher than the 8.3% growth forecast for the broader market.
With this information, we can see why Mayville Engineering Company is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.
What We Can Learn From Mayville Engineering Company's P/E?
The strong share price surge has got Mayville Engineering Company's P/E rushing to great heights as well. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.
We've established that Mayville Engineering Company maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.
Before you settle on your opinion, we've discovered 2 warning signs for Mayville Engineering Company that you should be aware of.
If you're unsure about the strength of Mayville Engineering Company's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
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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.
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