Does Public Joint Stock Company Magnit's (MCX:MGNT) PE Ratio Signal A Selling Opportunity?

MGNT is priced at a multiple of 11.34x based on its prior year’s earnings, slightly lower than the 18.67x average multiple of the Consumer Retailing. However, a static multiple such as PE is never conclusive on its own. This is because there are many company-specific factors like future prospects and capital structure, which are unaccounted for. In this article, I am going to take you through some key things to consider in order to identify which multiple is the most relevant for MGNT. Let's take a look below.

How much does MGNT earn?

PE is only used when a company is profitable, such as MGNT. This is because companies that are unprofitable or have recently become loss making cannot be valued using price-to-earnings since there are no earnings. Other useful measures can be employed to evaluate companies in this situation, such as price-to-free-cash-flow or price-to-sales where it is suitable. Previously, MGNT has always produced a positive bottom line. This means investors can draw some insight from using the PE ratio, but let’s see if there is a better alternative.

Is MGNT in a lot of debt?

Generally, debt should be below 40% of equity. Given that ’s debt-to-equity ratio is currently 48.77%, there’s room for improvement. The current ratio can be interpreted as for every RUB1 a shareholder owns, it owes RUB0.49 to creditors. This can be risky, given that in the event of bankruptcy, these debtors receive the first claim on the assets of the company.

Debt levels matter when valuing the business because in theory MGNT’s share price represents the equity portion only, but its important to account for debt, as debt represents a liability to the owner, and it impacts the earnings capacity and risk profile of the company. The EV/EBITDA multiple, which uses EV as a substitute for share price, allows us to incorporate debt into our valuation. The 6.4x average multiple for the industry indicates that MGNT may be priced at a discount, albeit to a lesser extent than the PE ratio.

Does MGNT have a fast-growing outlook?

According to industry analyst consensus of earnings estimates, the bottom line is expected to grow by 12.48% every year for the next 5 years. This gives MGNT a relatively solid growth outlook. However, current earnings don’t reflect any of this potential growth, which is a limitation for using past (or “trailing”) values of EBITDA. You should pay for what you’re going to get, not what’s already happened. To shift our analysis to focus on the future, we will use a forward figure for EBITDA based off analyst forecasts for the year ahead.

The 8.59x average multiple for the industry suggests that MGNT is undervalued relative to its peers. and to a greater extent than what was indicated by the trailing EV/EBITDA ratio.

Next Steps:

Looking at relative valuation alone does not give you a complete picture of an investment. There are many important factors I have not taken into account in this article. If you have not done so already, I highly recommend you to complete your research by taking a look at the following:

1. Future Outlook: What are well-informed industry analysts predicting for ’s future growth? Take a look at our free research report of analyst consensus for ’s outlook.
2. Past Track Record: Has been consistently performing well irrespective of the ups and downs in the market? Go into more detail in the past performance analysis and take a look at the free visual representations of 's historicals for more clarity.
3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

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Simply Wall St analyst Simply Wall St and Simply Wall St have no position in any of the companies mentioned. This article 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.