Armac Locação, Logística e Serviços S.A. (BVMF:ARML3) Not Lagging Market On Growth Or Pricing

When close to half the companies in Brazil have price-to-earnings ratios (or "P/E's") below 10x, you may consider Armac Locação, Logística e Serviços S.A. (BVMF:ARML3) as a stock to avoid entirely with its 20.8x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

There hasn't been much to differentiate Armac Locação Logística e Serviços' and the market's earnings growth lately. It might be that many expect the mediocre earnings performance to strengthen positively, which has kept the P/E from falling. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Armac Locação Logística e Serviços

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Armac Locação Logística e Serviços.

How Is Armac Locação Logística e Serviços' Growth Trending?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Armac Locação Logística e Serviços' to be considered reasonable.

If we review the last year of earnings growth, the company posted a worthy increase of 9.8%. The latest three year period has also seen an excellent 527% overall rise in EPS, aided somewhat by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 36% per year as estimated by the seven analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 16% each year, which is noticeably less attractive.

With this information, we can see why Armac Locação Logística e Serviços is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

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.

As we suspected, our examination of Armac Locação Logística e Serviços' analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 2 warning signs for Armac Locação Logística e Serviços (1 is potentially serious!) that you should be aware of.

You might be able to find a better investment than Armac Locação Logística e Serviços. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.