Why Investors Shouldn't Be Surprised By Mueller Industries, Inc.'s (NYSE:MLI) 32% Share Price Surge

Mueller Industries, Inc. (NYSE:MLI) shares have continued their recent momentum with a 32% gain in the last month alone. The last month tops off a massive increase of 151% in the last year.

In spite of the firm bounce in price, there still wouldn't be many who think Mueller Industries' price-to-earnings (or "P/E") ratio of 18.4x is worth a mention when the median P/E in the United States is similar at about 19x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

For example, consider that Mueller Industries' financial performance has been poor lately as its earnings have been in decline. It might be that many expect the company to put the disappointing earnings performance behind them over the coming period, which has kept the P/E from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

Check out our latest analysis for Mueller Industries

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

How Is Mueller Industries' Growth Trending?

Mueller Industries' P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 5.9%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 52% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

It's interesting to note that the rest of the market is similarly expected to grow by 15% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Mueller Industries' P/E sits in line with the majority of other companies. Apparently shareholders are comfortable to simply hold on assuming the company will continue keeping a low profile.

The Final Word

Its shares have lifted substantially and now Mueller Industries' P/E is also back up to the market median. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Mueller Industries maintains its moderate P/E off the back of its recent three-year growth being in line with the wider market forecast, as expected. At this stage investors feel the potential for an improvement or deterioration in earnings isn't great enough to justify a high or low P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Mueller Industries you should know about.

You might be able to find a better investment than Mueller Industries. 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.