Unfortunately for some shareholders, the UMT United Mobility Technology (ETR:UMDK) share price has dived 40% in the last thirty days. Given the 69% drop over the last year, some shareholders might be worried that they have become bagholders. For those wondering, a bagholder is someone who keeps holding a losing stock indefinitely, without taking the time to consider its prospects carefully, going forward.

Assuming nothing else has changed, a lower share price makes a stock more attractive to potential buyers. In the long term, share prices tend to follow earnings per share, but in the short term prices bounce around in response to short term factors (which are not always obvious). So, on certain occasions, long term focussed investors try to take advantage of pessimistic expectations to buy shares at a better price. Perhaps the simplest way to get a read on investors' expectations of a business is to look at its Price to Earnings Ratio (PE Ratio). A high P/E implies that investors have high expectations of what a company can achieve compared to a company with a low P/E ratio.

Check out our latest analysis for UMT United Mobility Technology

Does UMT United Mobility Technology Have A Relatively High Or Low P/E For Its Industry?

UMT United Mobility Technology's P/E of 5.27 indicates relatively low sentiment towards the stock. We can see in the image below that the average P/E (37.4) for companies in the software industry is higher than UMT United Mobility Technology's P/E.

Its relatively low P/E ratio indicates that UMT United Mobility Technology shareholders think it will struggle to do as well as other companies in its industry classification. Since the market seems unimpressed with UMT United Mobility Technology, it's quite possible it could surprise on the upside. If you consider the stock interesting, further research is recommended. For example, I often monitor director buying and selling.

How Growth Rates Impact P/E Ratios

P/E ratios primarily reflect market expectations around earnings growth rates. Earnings growth means that in the future the 'E' will be higher. That means unless the share price increases, the P/E will reduce in a few years. A lower P/E should indicate the stock is cheap relative to others -- and that may attract buyers.

UMT United Mobility Technology's earnings per share grew by 8.4% in the last twelve months. And earnings per share have improved by 29% annually, over the last five years.

Don't Forget: The P/E Does Not Account For Debt or Bank Deposits

It's important to note that the P/E ratio considers the market capitalization, not the enterprise value. Thus, the metric does not reflect cash or debt held by the company. Hypothetically, a company could reduce its future P/E ratio by spending its cash (or taking on debt) to achieve higher earnings.