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Even With A 28% Surge, Cautious Investors Are Not Rewarding Mineral & Financial Investments Limited's (LON:MAFL) Performance Completely
Mineral & Financial Investments Limited (LON:MAFL) shares have had a really impressive month, gaining 28% after a shaky period beforehand. Unfortunately, despite the strong performance over the last month, the full year gain of 8.7% isn't as attractive.
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 17x, you may still consider Mineral & Financial Investments as a highly attractive investment with its 2.3x 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.
The earnings growth achieved at Mineral & Financial Investments over the last year would be more than acceptable for most companies. One possibility is that the P/E is low because investors think this respectable earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.
Check out 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 24% last year. The latest three year period has also seen an excellent 97% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.
This is in contrast to the rest of the market, which is expected to grow by 20% over the next year, materially lower than the company's recent medium-term annualised growth rates.
With this information, we find it odd that Mineral & Financial Investments is trading at a P/E lower than the market. It looks like most investors are not convinced the company can maintain its recent growth rates.
The Key Takeaway
Even after such a strong price move, Mineral & Financial Investments' P/E still trails the rest of the market significantly. 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 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. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.
Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Mineral & Financial Investments (1 makes us a bit uncomfortable) you should be aware of.
If you're unsure about the strength of Mineral & Financial Investments' 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.
About AIM:MAFL
Mineral & Financial Investments
An investment company, invests in natural resources, minerals, metals, and oil and gas projects in the Cayman Islands.
Solid track record and good value.