MAAS Group Holdings Limited (ASX:MGH) Stock's 28% Dive Might Signal An Opportunity But It Requires Some Scrutiny

MAAS Group Holdings Limited (ASX:MGH) shareholders that were waiting for something to happen have been dealt a blow with a 28% share price drop in the last month. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 48% in that time.

Even after such a large drop in price, there still wouldn't be many who think MAAS Group Holdings' price-to-earnings (or "P/E") ratio of 14x is worth a mention when the median P/E in Australia is similar at about 15x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Recent times have been advantageous for MAAS Group Holdings as its earnings have been rising faster than most other companies. One possibility is that the P/E is moderate because investors think this strong earnings performance might be about to tail off. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Our analysis indicates that MGH is potentially undervalued!

Want the full picture on analyst estimates for the company? Then our free report on MAAS Group Holdings will help you uncover what's on the horizon.

How Is MAAS Group Holdings' Growth Trending?

There's an inherent assumption that a company should be matching the market for P/E ratios like MAAS Group Holdings' to be considered reasonable.

Retrospectively, the last year delivered an exceptional 49% gain to the company's bottom line. Pleasingly, EPS has also lifted 340% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 28% per annum during the coming three years according to the five analysts following the company. With the market only predicted to deliver 13% each year, the company is positioned for a stronger earnings result.

In light of this, it's curious that MAAS Group Holdings' P/E sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Bottom Line On MAAS Group Holdings' P/E

Following MAAS Group Holdings' share price tumble, its P/E is now hanging on to the median market P/E. 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 MAAS Group Holdings currently trades on a lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

We don't want to rain on the parade too much, but we did also find 3 warning signs for MAAS Group Holdings (2 are a bit concerning!) that you need to be mindful of.

If P/E ratios interest you, you may wish to see this free collection of other companies that have grown earnings strongly and trade on P/E's below 20x.

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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.