M.T.I Wireless Edge Ltd.'s (LON:MWE) Price Is Right But Growth Is Lacking After Shares Rocket 36%

The M.T.I Wireless Edge Ltd. (LON:MWE) share price has done very well over the last month, posting an excellent gain of 36%. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 9.3% in the last twelve months.

Even after such a large jump in price, M.T.I Wireless Edge may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 13.6x, since almost half of all companies in the United Kingdom have P/E ratios greater than 16x and even P/E's higher than 30x 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 limited.

M.T.I Wireless Edge certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. 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.

Check out our latest analysis for M.T.I Wireless Edge

Want the full picture on analyst estimates for the company? Then our free report on M.T.I Wireless Edge will help you uncover what's on the horizon.

Is There Any Growth For M.T.I Wireless Edge?

The only time you'd be truly comfortable seeing a P/E as low as M.T.I Wireless Edge's is when the company's growth is on track to lag the market.

If we review the last year of earnings growth, the company posted a worthy increase of 8.9%. The solid recent performance means it was also able to grow EPS by 20% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

Turning to the outlook, the next year should generate growth of 0.4% as estimated by the two analysts watching the company. That's shaping up to be materially lower than the 16% growth forecast for the broader market.

In light of this, it's understandable that M.T.I Wireless Edge's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From M.T.I Wireless Edge's P/E?

The latest share price surge wasn't enough to lift M.T.I Wireless Edge's P/E close to the market median. 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 M.T.I Wireless Edge's analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for M.T.I Wireless Edge 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.