Main Street Complex p.l.c. (MTSE:MSC) May Have Run Too Fast Too Soon With Recent 31% Price Plummet

The Main Street Complex p.l.c. (MTSE:MSC) share price has fared very poorly over the last month, falling by a substantial 31%. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 40% share price drop.

Even after such a large drop in price, you could still be forgiven for feeling indifferent about Main Street Complex's P/E ratio of 15.7x, since the median price-to-earnings (or "P/E") ratio in Malta is also close to 15x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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As an illustration, earnings have deteriorated at Main Street Complex over the last year, which is not ideal at all. One possibility is that the P/E is moderate because investors think the company might still do enough to be in line with the broader market in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.

See our latest analysis for Main Street Complex

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Main Street Complex will help you shine a light on its historical performance.

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

There's an inherent assumption that a company should be matching the market for P/E ratios like Main Street Complex's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 28% decrease to the company's bottom line. Regardless, EPS has managed to lift by a handy 5.2% in aggregate from three years ago, thanks to the earlier period of growth. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of earnings growth.

Comparing that to the market, which is predicted to deliver 19% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

In light of this, it's curious that Main Street Complex's P/E sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as a continuation of recent earnings trends is likely to weigh down the shares eventually.

What We Can Learn From Main Street Complex's P/E?

With its share price falling into a hole, the P/E for Main Street Complex looks quite average now. 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.

Our examination of Main Street Complex revealed its three-year earnings trends aren't impacting its P/E as much as we would have predicted, given they look worse than current market expectations. When we see weak earnings with slower than market growth, we suspect the share price is at risk of declining, sending the moderate P/E lower. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Main Street Complex that you should be aware of.

Of course, you might also be able to find a better stock than Main Street Complex. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.