With a median price-to-earnings (or "P/E") ratio of close to 19x in Australia, you could be forgiven for feeling indifferent about Money3 Corporation Limited's (ASX:MNY) P/E ratio of 17.6x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.
There hasn't been much to differentiate Money3's and the market's retreating earnings lately. The P/E is probably moderate because investors think the company's earnings trend will continue to follow the rest of the market. You'd much rather the company wasn't bleeding earnings if you still believe in the business. In saying that, existing shareholders probably aren't too pessimistic about the share price if the company's earnings continue tracking the market.
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Money3.
How Is Money3's Growth Trending?
There's an inherent assumption that a company should be matching the market for P/E ratios like Money3's to be considered reasonable.
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 7.2%. As a result, earnings from three years ago have also fallen 36% overall. 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 three analysts covering the company suggest earnings should grow by 54% over the next year. Meanwhile, the rest of the market is forecast to only expand by 17%, which is noticeably less attractive.
With this information, we find it interesting that Money3 is trading at a fairly similar P/E to the market. It may be that most investors aren't convinced the company can achieve future growth expectations.
What We Can Learn From Money3's P/E?
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 Money3 currently trades on a lower than expected P/E since its forecast growth is higher than the wider market. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.
Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Money3 (1 is concerning) you should be aware of.
If you're unsure about the strength of Money3's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
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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