After Leaping 25% Mortgage Advice Bureau (Holdings) plc (LON:MAB1) Shares Are Not Flying Under The Radar

Mortgage Advice Bureau (Holdings) plc (LON:MAB1) shareholders are no doubt pleased to see that the share price has bounced 25% in the last month, although it is still struggling to make up recently lost ground. Looking back a bit further, it's encouraging to see the stock is up 40% in the last year.

Since its price has surged higher, Mortgage Advice Bureau (Holdings) may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 43.3x, since almost half of all companies in the United Kingdom have P/E ratios under 16x and even P/E's lower than 9x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

While the market has experienced earnings growth lately, Mortgage Advice Bureau (Holdings)'s earnings have gone into reverse gear, which is not great. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. If not, then existing shareholders may be extremely nervous about the viability of the share price.

See our latest analysis for Mortgage Advice Bureau (Holdings)

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Mortgage Advice Bureau (Holdings).

How Is Mortgage Advice Bureau (Holdings)'s Growth Trending?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Mortgage Advice Bureau (Holdings)'s to be considered reasonable.

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 2.3%. As a result, earnings from three years ago have also fallen 38% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the dual analysts covering the company suggest earnings should grow by 29% per annum over the next three years. That's shaping up to be materially higher than the 14% each year growth forecast for the broader market.

In light of this, it's understandable that Mortgage Advice Bureau (Holdings)'s P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Mortgage Advice Bureau (Holdings)'s P/E?

Shares in Mortgage Advice Bureau (Holdings) have built up some good momentum lately, which has really inflated its P/E. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Mortgage Advice Bureau (Holdings) 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.

Before you settle on your opinion, we've discovered 2 warning signs for Mortgage Advice Bureau (Holdings) that you should be aware of.

You might be able to find a better investment than Mortgage Advice Bureau (Holdings). If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.