Investors Aren't Entirely Convinced About Equatorial Pará Distribuidora de Energia S.A.'s (BVMF:EQPA3) Earnings

Equatorial Pará Distribuidora de Energia S.A.'s (BVMF:EQPA3) price-to-earnings (or "P/E") ratio of 12.8x might make it look like a buy right now compared to the market in Brazil, where around half of the companies have P/E ratios above 18x and even P/E's above 35x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Earnings have risen firmly for Equatorial Pará Distribuidora de Energia recently, which is pleasing to see. It might be that many expect the respectable earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

View our latest analysis for Equatorial Pará Distribuidora de Energia

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Equatorial Pará Distribuidora de Energia's earnings, revenue and cash flow.

Does Growth Match The Low P/E?

Equatorial Pará Distribuidora de Energia's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 14% last year. This was backed up an excellent period prior to see EPS up by 115% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Comparing that to the market, which is only predicted to deliver 11% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

In light of this, it's peculiar that Equatorial Pará Distribuidora de Energia's P/E sits below the majority of other companies. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

What We Can Learn From Equatorial Pará Distribuidora de Energia's 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.

Our examination of Equatorial Pará Distribuidora de Energia revealed its three-year earnings trends aren't contributing to its P/E anywhere near as much as we would have predicted, given they look better than current market expectations. When we see strong earnings 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 if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.

Before you take the next step, you should know about the 2 warning signs for Equatorial Pará Distribuidora de Energia (1 is a bit unpleasant!) that we have uncovered.

Of course, you might also be able to find a better stock than Equatorial Pará Distribuidora de Energia. So you may wish to see this free collection of other companies that sit on P/E's below 20x and have grown earnings strongly.

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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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