Investors Still Waiting For A Pull Back In MAAS Group Holdings Limited (ASX:MGH)

When close to half the companies in Australia have price-to-earnings ratios (or "P/E's") below 17x, you may consider MAAS Group Holdings Limited (ASX:MGH) as a stock to potentially avoid with its 20.4x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

MAAS Group Holdings hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for MAAS Group Holdings

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Is There Enough Growth For MAAS Group Holdings?

The only time you'd be truly comfortable seeing a P/E as high as MAAS Group Holdings' is when the company's growth is on track to outshine 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 8.0%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 44% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Shifting to the future, estimates from the six analysts covering the company suggest earnings should grow by 21% per year over the next three years. That's shaping up to be materially higher than the 16% per year growth forecast for the broader market.

In light of this, it's understandable that MAAS Group Holdings' P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

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.

As we suspected, our examination of MAAS Group Holdings' analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

Plus, you should also learn about these 2 warning signs we've spotted with MAAS Group Holdings (including 1 which is concerning).

If you're unsure about the strength of MAAS Group Holdings' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.