A Piece Of The Puzzle Missing From Mineral & Financial Investments Limited's (LON:MAFL) 27% Share Price Climb

Despite an already strong run, Mineral & Financial Investments Limited (LON:MAFL) shares have been powering on, with a gain of 27% in the last thirty days. The last month tops off a massive increase of 113% in the last year.

Even after such a large jump in price, given about half the companies in the United Kingdom have price-to-earnings ratios (or "P/E's") above 15x, you may still consider Mineral & Financial Investments as a highly attractive investment with its 3.5x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

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Mineral & Financial Investments certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

See our latest analysis for Mineral & Financial Investments

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Mineral & Financial Investments' earnings, revenue and cash flow.

Does Growth Match The Low P/E?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Mineral & Financial Investments' to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 74% last year. The strong recent performance means it was also able to grow EPS by 180% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 18% shows it's noticeably more attractive on an annualised basis.

In light of this, it's peculiar that Mineral & Financial Investments' P/E sits below the majority of other companies. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

What We Can Learn From Mineral & Financial Investments' P/E?

Shares in Mineral & Financial Investments are going to need a lot more upward momentum to get the company's P/E out of its slump. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Mineral & Financial Investments currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. It appears many are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

There are also other vital risk factors to consider before investing and we've discovered 3 warning signs for Mineral & Financial Investments that you should be aware of.

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.