Getting In Cheap On Mitre Realty Empreendimentos e Participações S.A. (BVMF:MTRE3) Might Be Difficult

Mitre Realty Empreendimentos e Participações S.A.'s (BVMF:MTRE3) price-to-earnings (or "P/E") ratio of 40.7x might make it look like a strong sell right now compared to the market in Brazil, where around half of the companies have P/E ratios below 15x and even P/E's below 9x are quite common. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Mitre Realty Empreendimentos e Participações could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Mitre Realty Empreendimentos e Participações

Where Does Mitre Realty Empreendimentos e Participações' P/E Sit Within Its Industry?

It's plausible that Mitre Realty Empreendimentos e Participações' particularly high P/E ratio could be a result of tendencies within its own industry. The image below shows that the Real Estate industry as a whole also has a P/E ratio significantly higher than the market. So it appears the company's ratio could be influenced considerably by these industry numbers currently. Ordinarily, the majority of companies' P/E's would be lifted firmly by the general conditions within the Real Estate industry. Still, the strength of the company's earnings will most likely determine where its P/E shall sit.

Keen to find out how analysts think Mitre Realty Empreendimentos e Participações' future stacks up against the industry? In that case, our free report is a great place to start.

Does Growth Match The High P/E?

In order to justify its P/E ratio, Mitre Realty Empreendimentos e Participações would need to produce outstanding growth well in excess of the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 35%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 1297% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 56% per year during the coming three years according to the three analysts following the company. That's shaping up to be materially higher than the 13% each year growth forecast for the broader market.

In light of this, it's understandable that Mitre Realty Empreendimentos e Participações' P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From Mitre Realty Empreendimentos e Participações' P/E?

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Mitre Realty Empreendimentos e Participações maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Mitre Realty Empreendimentos e Participações (at least 1 which makes us a bit uncomfortable), and understanding these should be part of your investment process.

You might be able to find a better investment than Mitre Realty Empreendimentos e Participações. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a P/E below 20x (but have proven they can grow earnings).

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This article by Simply Wall St is general in nature. 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.
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