It's Down 29% But MobilityOne Limited (LON:MBO) Could Be Riskier Than It Looks

MobilityOne Limited (LON:MBO) shares have retraced a considerable 29% in the last month, reversing a fair amount of their solid recent performance. Nonetheless, the last 30 days have barely left a scratch on the stock's annual performance, which is up a whopping 317%.

Following the heavy fall in price, given close to half the companies in the United Kingdom have price-to-earnings ratios (or "P/E's") above 18x, you may consider MobilityOne as a highly attractive investment with its 6.2x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

MobilityOne certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for MobilityOne

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We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on MobilityOne's earnings, revenue and cash flow.

What Are Growth Metrics Telling Us About The Low P/E?

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

If we review the last year of earnings growth, the company posted a terrific increase of 77%. The strong recent performance means it was also able to grow EPS by 445% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

This is in contrast to the rest of the market, which is expected to grow by 5.8% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it odd that MobilityOne is trading at a P/E lower than the market. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Bottom Line On MobilityOne's P/E

Shares in MobilityOne have plummeted and its P/E is now low enough to touch the ground. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that MobilityOne currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

There are also other vital risk factors to consider and we've discovered 4 warning signs for MobilityOne (1 is potentially serious!) that you should be aware of before investing here.

Of course, you might also be able to find a better stock than MobilityOne. So you may wish to see this free collection of other companies that sit on P/E's below 20x and have grown earnings strongly.

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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