nmcn plc (LON:NMCN) shareholders that were waiting for something to happen have been dealt a blow with a 32% share price drop in the last month. For any long-term shareholders, the last month ends a year to forget by locking in a 54% share price decline.
Since its price has dipped substantially, nmcn may be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 6.7x, 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. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.
With earnings that are retreating more than the market's of late, nmcn has been very sluggish. The P/E is probably low because investors think this poor earnings performance isn't going to improve at all. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.
Want the full picture on analyst estimates for the company? Then our free report on nmcn will help you uncover what's on the horizon.
What Are Growth Metrics Telling Us About The Low P/E?
nmcn's P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.
Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 32%. Regardless, EPS has managed to lift by a handy 19% in aggregate from three years ago, thanks to the earlier period of growth. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been mostly respectable for the company.
Shifting to the future, estimates from the sole analyst covering the company suggest earnings growth is heading into negative territory, declining 1.3% over the next year. With the market predicted to deliver 4.4% growth , that's a disappointing outcome.
With this information, we are not surprised that nmcn is trading at a P/E lower than the market. 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.
What We Can Learn From nmcn's P/E?
nmcn's P/E looks about as weak as its stock price lately. 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 nmcn maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.
You always need to take note of risks, for example - nmcn has 5 warning signs we think you should be aware of.
You might be able to find a better investment than nmcn. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a P/E below 20x (but have proven they can grow earnings).
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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