Investors Don't See Light At End Of Mackenzie Master Limited Partnership's (TSE:MKZ.UN) Tunnel

When close to half the companies in Canada have price-to-earnings ratios (or "P/E's") above 15x, you may consider Mackenzie Master Limited Partnership (TSE:MKZ.UN) as a highly attractive investment with its 4.4x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

For instance, Mackenzie Master Limited Partnership's receding earnings in recent times would have to be some food for thought. One possibility is that the P/E is low because investors think the company won't do enough to avoid underperforming the broader market in the near future. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

See our latest analysis for Mackenzie Master Limited Partnership

Although there are no analyst estimates available for Mackenzie Master Limited Partnership, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Mackenzie Master Limited Partnership's Growth Trending?

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

Retrospectively, the last year delivered a frustrating 3.1% decrease to the company's bottom line. This means it has also seen a slide in earnings over the longer-term as EPS is down 13% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

In contrast to the company, the rest of the market is expected to grow by 18% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

With this information, we are not surprised that Mackenzie Master Limited Partnership is trading at a P/E lower than the market. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

What We Can Learn From Mackenzie Master Limited Partnership's P/E?

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.

As we suspected, our examination of Mackenzie Master Limited Partnership revealed its shrinking earnings over the medium-term are contributing to its low P/E, given the market is set to grow. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

Having said that, be aware Mackenzie Master Limited Partnership is showing 4 warning signs in our investment analysis, you should know about.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.