Investors Give Armac Locação, Logística e Serviços S.A. (BVMF:ARML3) Shares A 26% Hiding

Unfortunately for some shareholders, the Armac Locação, Logística e Serviços S.A. (BVMF:ARML3) share price has dived 26% in the last thirty days, prolonging recent pain. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 65% loss during that time.

In spite of the heavy fall in price, there still wouldn't be many who think Armac Locação Logística e Serviços' price-to-earnings (or "P/E") ratio of 9.8x is worth a mention when the median P/E in Brazil is similar at about 9x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

With earnings growth that's superior to most other companies of late, Armac Locação Logística e Serviços has been doing relatively well. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. 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 not quite in favour.

View our latest analysis for Armac Locação Logística e Serviços

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How Is Armac Locação Logística e Serviços' Growth Trending?

In order to justify its P/E ratio, Armac Locação Logística e Serviços would need to produce growth that's similar to the market.

Retrospectively, the last year delivered an exceptional 23% gain to the company's bottom line. Pleasingly, EPS has also lifted 376% in aggregate from three years ago, thanks to the last 12 months of growth. 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 32% each year as estimated by the nine analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 14% per annum, which is noticeably less attractive.

In light of this, it's curious that Armac Locação Logística e Serviços' P/E sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.

What We Can Learn From Armac Locação Logística e Serviços' P/E?

With its share price falling into a hole, the P/E for Armac Locação Logística e Serviços looks quite average now. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

Our examination of Armac Locação Logística e Serviços' analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Armac Locação Logística e Serviços (of which 1 is concerning!) you should know about.

Of course, you might also be able to find a better stock than Armac Locação Logística e Serviços. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.