How Does Maman-Cargo Terminals & Handling's (TLV:MMAN) P/E Compare To Its Industry, After The Share Price Drop?

To the annoyance of some shareholders, Maman-Cargo Terminals & Handling (TLV:MMAN) shares are down a considerable 54% in the last month. Indeed the recent decline has arguably caused some bitterness for shareholders who have held through the 54% drop over twelve months.

All else being equal, a share price drop should make a stock more attractive to potential investors. In the long term, share prices tend to follow earnings per share, but in the short term prices bounce around in response to short term factors (which are not always obvious). The implication here is that long term investors have an opportunity when expectations of a company are too low. One way to gauge market expectations of a stock is to look at its Price to Earnings Ratio (PE Ratio). A high P/E ratio means that investors have a high expectation about future growth, while a low P/E ratio means they have low expectations about future growth.

View our latest analysis for Maman-Cargo Terminals & Handling

Does Maman-Cargo Terminals & Handling Have A Relatively High Or Low P/E For Its Industry?

We can tell from its P/E ratio of 3.91 that sentiment around Maman-Cargo Terminals & Handling isn't particularly high. We can see in the image below that the average P/E (9.2) for companies in the infrastructure industry is higher than Maman-Cargo Terminals & Handling's P/E.

Maman-Cargo Terminals & Handling's P/E tells us that market participants think it will not fare as well as its peers in the same industry. Since the market seems unimpressed with Maman-Cargo Terminals & Handling, it's quite possible it could surprise on the upside. It is arguably worth checking if insiders are buying shares, because that might imply they believe the stock is undervalued.

How Growth Rates Impact P/E Ratios

Companies that shrink earnings per share quickly will rapidly decrease the 'E' in the equation. Therefore, even if you pay a low multiple of earnings now, that multiple will become higher in the future. A higher P/E should indicate the stock is expensive relative to others -- and that may encourage shareholders to sell.

Maman-Cargo Terminals & Handling's earnings made like a rocket, taking off 54% last year. Unfortunately, earnings per share are down 11% a year, over 3 years.

A Limitation: P/E Ratios Ignore Debt and Cash In The Bank

The 'Price' in P/E reflects the market capitalization of the company. That means it doesn't take debt or cash into account. The exact same company would hypothetically deserve a higher P/E ratio if it had a strong balance sheet, than if it had a weak one with lots of debt, because a cashed up company can spend on growth.

While growth expenditure doesn't always pay off, the point is that it is a good option to have; but one that the P/E ratio ignores.

So What Does Maman-Cargo Terminals & Handling's Balance Sheet Tell Us?

Maman-Cargo Terminals & Handling has net debt worth a very significant 226% of its market capitalization. This is a relatively high level of debt, so the stock probably deserves a relatively low P/E ratio. Keep that in mind when comparing it to other companies.

The Verdict On Maman-Cargo Terminals & Handling's P/E Ratio

Maman-Cargo Terminals & Handling trades on a P/E ratio of 3.9, which is below the IL market average of 8.6. The company may have significant debt, but EPS growth was good last year. If the company can continue to grow earnings, then the current P/E may be unjustifiably low. Given Maman-Cargo Terminals & Handling's P/E ratio has declined from 8.5 to 3.9 in the last month, we know for sure that the market is more worried about the business today, than it was back then. For those who prefer to invest with the flow of momentum, that might be a bad sign, but for deep value investors this stock might justify some research.

Investors have an opportunity when market expectations about a stock are wrong. If it is underestimating a company, investors can make money by buying and holding the shares until the market corrects itself. We don't have analyst forecasts, but you could get a better understanding of its growth by checking out this more detailed historical graph of earnings, revenue and cash flow.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with modest (or no) debt, trading on a P/E below 20.

If you spot an error that warrants correction, please contact the editor at editorial-team@simplywallst.com. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.

We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Thank you for reading.