Improved Earnings Required Before Mastermyne Group Limited (ASX:MYE) Shares Find Their Feet

When close to half the companies in Australia have price-to-earnings ratios (or "P/E's") above 20x, you may consider Mastermyne Group Limited (ASX:MYE) as a highly attractive investment with its 8.8x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Mastermyne Group has been doing quite well of late. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for Mastermyne Group

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Want the full picture on analyst estimates for the company? Then our free report on Mastermyne Group will help you uncover what's on the horizon.

Is There Any Growth For Mastermyne Group?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Mastermyne Group's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 54% gain to the company's bottom line. Still, EPS has barely risen at all from three years ago in total, which is not ideal. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Shifting to the future, estimates from the sole analyst covering the company suggest earnings should grow by 6.1% per annum over the next three years. With the market predicted to deliver 18% growth each year, the company is positioned for a weaker earnings result.

With this information, we can see why Mastermyne Group is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

The price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Mastermyne Group maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

There are also other vital risk factors to consider before investing and we've discovered 3 warning signs for Mastermyne Group that you should be aware of.

You might be able to find a better investment than Mastermyne Group. 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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