Yahoo Finance A Sliding Share Price Has Us Looking At Moneysupermarket.com Group PLC's (LON:MONY) P/E Ratio
Unfortunately for some shareholders, the Moneysupermarket.com Group (LON:MONY) share price has dived 31% in the last thirty days. Indeed the recent decline has arguably caused some bitterness for shareholders who have held through the 38% drop over twelve months.
Assuming nothing else has changed, a lower share price makes a stock more attractive to potential buyers. In the long term, share prices tend to follow earnings per share, but in the short term prices bounce around in response to short term factors (which are not always obvious). So, on certain occasions, long term focussed investors try to take advantage of pessimistic expectations to buy shares at a better price. One way to gauge market expectations of a stock is to look at its Price to Earnings Ratio (PE Ratio). Investors have optimistic expectations of companies with higher P/E ratios, compared to companies with lower P/E ratios.
See our latest analysis for Moneysupermarket.com Group
Does Moneysupermarket.com Group Have A Relatively High Or Low P/E For Its Industry?
Moneysupermarket.com Group's P/E is 12.84. As you can see below Moneysupermarket.com Group has a P/E ratio that is fairly close for the average for the online retail industry, which is 12.4.
That indicates that the market expects Moneysupermarket.com Group will perform roughly in line with other companies in its industry. So if Moneysupermarket.com Group actually outperforms its peers going forward, that should be a positive for the share price. I would further inform my view by checking insider buying and selling., among other things.
How Growth Rates Impact P/E Ratios
Generally speaking the rate of earnings growth has a profound impact on a company's P/E multiple. When earnings grow, the 'E' increases, over time. That means unless the share price increases, the P/E will reduce in a few years. So while a stock may look expensive based on past earnings, it could be cheap based on future earnings.
Moneysupermarket.com Group saw earnings per share improve by 9.6% last year. And earnings per share have improved by 13% annually, over the last five years.
A Limitation: P/E Ratios Ignore Debt and Cash In The Bank
The 'Price' in P/E reflects the market capitalization of the company. So it won't reflect the advantage of cash, or disadvantage of debt. Theoretically, a business can improve its earnings (and produce a lower P/E in the future) by investing in growth. That means taking on debt (or spending its cash).
Such spending might be good or bad, overall, but the key point here is that you need to look at debt to understand the P/E ratio in context.
Is Debt Impacting Moneysupermarket.com Group's P/E?
Since Moneysupermarket.com Group holds net cash of UK£24m, it can spend on growth, justifying a higher P/E ratio than otherwise.
The Verdict On Moneysupermarket.com Group's P/E Ratio
Moneysupermarket.com Group has a P/E of 12.8. That's higher than the average in its market, which is 11.2. Recent earnings growth wasn't bad. Also positive, the relatively strong balance sheet will allow for investment in growth -- and the P/E indicates shareholders that will happen! Given Moneysupermarket.com Group's P/E ratio has declined from 18.5 to 12.8 in the last month, we know for sure that the market is significantly less confident about the business today, than it was back then. For those who prefer to invest with the flow of momentum, that might be a bad sign, but for a contrarian, it may signal opportunity.
Investors should be looking to buy stocks that the market is wrong about. As value investor Benjamin Graham famously said, 'In the short run, the market is a voting machine but in the long run, it is a weighing machine. So this free report on the analyst consensus forecasts could help you make a master move on this stock.
But note: Moneysupermarket.com Group may not be the best stock to buy. So take a peek at this free list of interesting companies with strong recent earnings growth (and a P/E ratio below 20).
If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. 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. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.
