To the annoyance of some shareholders, UMT United Mobility Technology (ETR:UMD) shares are down a considerable 43% in the last month. And that drop will have no doubt have some shareholders concerned that the 83% share price decline, over the last year, has turned them into bagholders. What is a bagholder? It is a shareholder who has suffered a bad loss, but continues to hold indefinitely, without questioning their reasons for holding, even as the losses grow greater.
All else being equal, a share price drop should make a stock more attractive to potential investors. While the market sentiment towards a stock is very changeable, in the long run, the share price will tend to move in the same direction as earnings per share. The implication here is that long term investors have an opportunity when expectations of a company are too low. One way to gauge market expectations of a stock is to look at its Price to Earnings Ratio (PE Ratio). A high P/E ratio means that investors have a high expectation about future growth, while a low P/E ratio means they have low expectations about future growth.
Check out our latest analysis for UMT United Mobility Technology
How Does UMT United Mobility Technology's P/E Ratio Compare To Its Peers?
UMT United Mobility Technology has a P/E ratio of 37.30. You can see in the image below that the average P/E (37.3) for companies in the software industry is roughly the same as UMT United Mobility Technology's P/E.
That indicates that the market expects UMT United Mobility Technology will perform roughly in line with other companies in its industry. If the company has better than average prospects, then the market might be underestimating it. I would further inform my view by checking insider buying and selling., among other things.
How Growth Rates Impact P/E Ratios
Earnings growth rates have a big influence on P/E ratios. When earnings grow, the 'E' increases, over time. Therefore, even if you pay a high multiple of earnings now, that multiple will become lower in the future. Then, a lower P/E should attract more buyers, pushing the share price up.
UMT United Mobility Technology's earnings per share fell by 64% in the last twelve months. And it has shrunk its earnings per share by 8.0% per year over the last five years. This could justify a pessimistic P/E.
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. Theoretically, a business can improve its earnings (and produce a lower P/E in the future) by investing in growth. That means taking on debt (or spending its cash).