When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 19x, you may consider MINISO Group Holding Limited (NYSE:MNSO) as an attractive investment with its 16x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.
Recent earnings growth for MINISO Group Holding has been in line with the market. One possibility is that the P/E is low because investors think this modest earnings performance may begin to slide. If not, then existing shareholders have reason to be optimistic about the future direction of the share price.
Check out our latest analysis for MINISO Group Holding
Is There Any Growth For MINISO Group Holding?
The only time you'd be truly comfortable seeing a P/E as low as MINISO Group Holding's is when the company's growth is on track to lag the market.
Taking a look back first, we see that the company managed to grow earnings per share by a handy 3.8% last year. The latest three year period has also seen an excellent 340% overall rise in EPS, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.
Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 16% per year over the next three years. That's shaping up to be materially higher than the 11% per annum growth forecast for the broader market.
With this information, we find it odd that MINISO Group Holding is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.
The Key Takeaway
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.
Our examination of MINISO Group Holding's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.
Plus, you should also learn about this 1 warning sign we've spotted with MINISO Group Holding.
Of course, you might also be able to find a better stock than MINISO Group Holding. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
Valuation is complex, but we're here to simplify it.
Discover if MINISO Group Holding might be undervalued or overvalued with our detailed analysis, featuring fair value estimates, potential risks, dividends, insider trades, and its financial condition.
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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.