MAHLE Metal Leve S.A.'s (BVMF:LEVE3) Earnings Are Not Doing Enough For Some Investors

MAHLE Metal Leve S.A.'s (BVMF:LEVE3) price-to-earnings (or "P/E") ratio of 6.7x 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 11x and even P/E's above 19x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

MAHLE Metal Leve certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

See our latest analysis for MAHLE Metal Leve

Keen to find out how analysts think MAHLE Metal Leve's future stacks up against the industry? In that case, our free report is a great place to start.

Does Growth Match The Low P/E?

The only time you'd be truly comfortable seeing a P/E as low as MAHLE Metal Leve's is when the company's growth is on track to lag the market.

If we review the last year of earnings growth, the company posted a terrific increase of 25%. The strong recent performance means it was also able to grow EPS by 656% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to slump, contracting by 21% during the coming year according to the three analysts following the company. With the market predicted to deliver 23% growth , that's a disappointing outcome.

In light of this, it's understandable that MAHLE Metal Leve's P/E would sit below the majority of other companies. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Key Takeaway

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that MAHLE Metal Leve maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

It is also worth noting that we have found 3 warning signs for MAHLE Metal Leve (2 are potentially serious!) that you need to take into consideration.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.