Moonpig Group PLC (LON:MOON) Not Lagging Market On Growth Or Pricing
There wouldn't be many who think Moonpig Group PLC's (LON:MOON) price-to-earnings (or "P/E") ratio of 15.3x is worth a mention when the median P/E in the United Kingdom is similar at about 15x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.
Moonpig Group 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 moderate because investors think the company's earnings will be less resilient moving forward. 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 not quite in favour.
Check out our latest analysis for Moonpig Group
Want the full picture on analyst estimates for the company? Then our free report on Moonpig Group will help you uncover what's on the horizon.
What Are Growth Metrics Telling Us About The P/E?
The only time you'd be comfortable seeing a P/E like Moonpig Group's is when the company's growth is tracking the market closely.
Taking a look back first, we see that the company grew earnings per share by an impressive 58% last year. Still, incredibly EPS has fallen 30% in total from three years ago, which is quite disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.
Shifting to the future, estimates from the ten analysts covering the company suggest earnings should grow by 11% per annum over the next three years. That's shaping up to be similar to the 12% each year growth forecast for the broader market.
With this information, we can see why Moonpig Group is trading at a fairly similar P/E to the market. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.
What We Can Learn From Moonpig Group's P/E?
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.
As we suspected, our examination of Moonpig Group's analyst forecasts revealed that its market-matching earnings outlook is contributing to its current P/E. At this stage investors feel the potential for an improvement or deterioration in earnings isn't great enough to justify a high or low P/E ratio. Unless these conditions change, they will continue to support the share price at these levels.
Plus, you should also learn about these 2 warning signs we've spotted with Moonpig Group.
You might be able to find a better investment than Moonpig Group. 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).
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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.
