Subdued Growth No Barrier To Mama's Creations, Inc. (NASDAQ:MAMA) With Shares Advancing 35%

Mama's Creations, Inc. (NASDAQ:MAMA) shares have continued their recent momentum with a 35% gain in the last month alone. The last month tops off a massive increase of 172% in the last year.

After such a large jump in price, Mama's Creations may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 39.4x, since almost half of all companies in the United States have P/E ratios under 17x and even P/E's lower than 9x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

Recent times have been pleasing for Mama's Creations as its earnings have risen in spite of the market's earnings going into reverse. The P/E is probably high because investors think the company will continue to navigate the broader market headwinds better than most. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for Mama's Creations

Want the full picture on analyst estimates for the company? Then our free report on Mama's Creations will help you uncover what's on the horizon.

How Is Mama's Creations' Growth Trending?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Mama's Creations' to be considered reasonable.

Retrospectively, the last year delivered an exceptional 181% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 44% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next year should bring diminished returns, with earnings decreasing 3.9% as estimated by the four analysts watching the company. Meanwhile, the broader market is forecast to expand by 13%, which paints a poor picture.

In light of this, it's alarming that Mama's Creations' P/E sits above the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a very good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the negative growth outlook.

What We Can Learn From Mama's Creations' P/E?

Shares in Mama's Creations have built up some good momentum lately, which has really inflated its P/E. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Mama's Creations currently trades on a much higher than expected P/E for a company whose earnings are forecast to decline. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings are highly unlikely to support such positive sentiment for long. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

You should always think about risks. Case in point, we've spotted 1 warning sign for Mama's Creations you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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