Stock Analysis

Little Excitement Around Mondi plc's (LON:MNDI) Earnings

LSE:MNDI
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With a price-to-earnings (or "P/E") ratio of 10.5x Mondi plc (LON:MNDI) may be sending bullish signals at the moment, given that almost half of all companies in the United Kingdom have P/E ratios greater than 15x and even P/E's higher than 28x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Mondi has been struggling lately as its earnings have declined faster than most other companies. It seems that many are expecting the dismal earnings performance to persist, which has repressed the P/E. You'd much rather the company wasn't bleeding earnings if you still believe in the business. Or at the very least, you'd be hoping the earnings slide doesn't get any worse if your plan is to pick up some stock while it's out of favour.

Check out our latest analysis for Mondi

pe-multiple-vs-industry
LSE:MNDI Price to Earnings Ratio vs Industry January 17th 2024
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Mondi.

Does Growth Match The Low P/E?

The only time you'd be truly comfortable seeing a P/E as low as Mondi's is when the company's growth is on track to lag the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 22%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 11% overall rise in EPS. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been mostly respectable for the company.

Looking ahead now, EPS is anticipated to slump, contracting by 8.1% each year during the coming three years according to the ten analysts following the company. That's not great when the rest of the market is expected to grow by 12% each year.

In light of this, it's understandable that Mondi's P/E would sit below the majority of other companies. 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 Mondi's 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 Mondi maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Mondi (at least 1 which shouldn't be ignored), and understanding them should be part of your investment process.

If you're unsure about the strength of Mondi's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Valuation is complex, but we're helping make it simple.

Find out whether Mondi is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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 LSE:MNDI

Mondi

Mondi plc, together with its subsidiaries, engages in the manufacture and sale of packaging and paper solutions in Africa, Western Europe, Emerging Europe, North America, South America, Asia, Australia, and internationally.

Flawless balance sheet, good value and pays a dividend.