Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság's (BUSE:MTELEKOM) Earnings Are Not Doing Enough For Some Investors

Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság's (BUSE:MTELEKOM) price-to-earnings (or "P/E") ratio of 8.2x might make it look like a buy right now compared to the market in Hungary, where around half of the companies have P/E ratios above 12x and even P/E's above 16x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

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Recent times have been pleasing for Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság as its earnings have risen in spite of the market's earnings going into reverse. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság

Keen to find out how analysts think Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság's future stacks up against the industry? In that case, our free report is a great place to start.

What Are Growth Metrics Telling Us About The Low P/E?

There's an inherent assumption that a company should underperform the market for P/E ratios like Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 59% gain to the company's bottom line. Pleasingly, EPS has also lifted 226% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Shifting to the future, estimates from the six analysts covering the company suggest earnings should grow by 5.7% each year over the next three years. Meanwhile, the rest of the market is forecast to expand by 15% each year, which is noticeably more attractive.

In light of this, it's understandable that Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság'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.

The Key Takeaway

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 Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

You should always think about risks. Case in point, we've spotted 1 warning sign for Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság you should be aware of.

You might be able to find a better investment than Magyar Telekom Távközlési Nyilvánosan Müködö Részvénytársaság. 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.