Mayr-Melnhof Karton AG's (VIE:MMK) P/E Is On The Mark

With a price-to-earnings (or "P/E") ratio of 29.9x Mayr-Melnhof Karton AG (VIE:MMK) may be sending very bearish signals at the moment, given that almost half of all companies in Austria have P/E ratios under 13x and even P/E's lower than 7x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Mayr-Melnhof Karton has been struggling lately as its earnings have declined faster than most other companies. One possibility is that the P/E is high because investors think the company will turn things around completely and accelerate past most others in the market. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Mayr-Melnhof Karton

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How Is Mayr-Melnhof Karton's Growth Trending?

In order to justify its P/E ratio, Mayr-Melnhof Karton would need to produce outstanding growth well in excess of 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 60%. As a result, earnings from three years ago have also fallen 72% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Turning to the outlook, the next year should generate growth of 162% as estimated by the dual analysts watching the company. With the market only predicted to deliver 16%, the company is positioned for a stronger earnings result.

With this information, we can see why Mayr-Melnhof Karton is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Mayr-Melnhof Karton maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

Having said that, be aware Mayr-Melnhof Karton is showing 3 warning signs in our investment analysis, and 1 of those can't be ignored.

Of course, you might also be able to find a better stock than Mayr-Melnhof Karton. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.