To the annoyance of some shareholders, MINISO Group Holding Limited (NYSE:MNSO) shares are down a considerable 28% in the last month, which continues a horrid run for the company. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 33% in that time.
In spite of the heavy fall in price, given about half the companies in the United States have price-to-earnings ratios (or "P/E's") above 16x, you may still consider MINISO Group Holding as an attractive investment with its 12.4x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.
MINISO Group Holding's earnings growth of late has been pretty similar to most other companies. One possibility is that the P/E is low because investors think this modest earnings performance may begin to slide. If you like the company, you'd be hoping this isn't the case so that you could pick up some stock while it's out of favour.
View our latest analysis for MINISO Group Holding
Is There Any Growth For MINISO Group Holding?
There's an inherent assumption that a company should underperform the market for P/E ratios like MINISO Group Holding's to be considered reasonable.
Taking a look back first, we see that the company managed to grow earnings per share by a handy 5.3% last year. Pleasingly, EPS has also lifted 347% in aggregate from three years ago, partly thanks to the last 12 months of growth. 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 19% each year over the next three years. That's shaping up to be materially higher than the 11% each year 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. It looks like most investors are not convinced at all that the company can achieve future growth expectations.
What We Can Learn From MINISO Group Holding's P/E?
MINISO Group Holding's P/E has taken a tumble along with its share price. 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 MINISO Group Holding currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.
You should always think about risks. Case in point, we've spotted 2 warning signs for MINISO Group Holding you should be aware of, and 1 of them is a bit unpleasant.
You might be able to find a better investment than MINISO Group Holding. 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.