There's No Escaping Construtora Adolpho Lindenberg S.A.'s (BVMF:CALI3) Muted Earnings Despite A 29% Share Price Rise

Despite an already strong run, Construtora Adolpho Lindenberg S.A. (BVMF:CALI3) shares have been powering on, with a gain of 29% in the last thirty days. The last month tops off a massive increase of 142% in the last year.

In spite of the firm bounce in price, Construtora Adolpho Lindenberg's price-to-earnings (or "P/E") ratio of 5.3x might still make it look like a strong buy right now compared to the market in Brazil, where around half of the companies have P/E ratios above 12x and even P/E's above 20x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

Recent times have been quite advantageous for Construtora Adolpho Lindenberg as its earnings have been rising very briskly. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. 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.

View our latest analysis for Construtora Adolpho Lindenberg

Although there are no analyst estimates available for Construtora Adolpho Lindenberg, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Construtora Adolpho Lindenberg's Growth Trending?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Construtora Adolpho Lindenberg's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 34%. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Comparing that to the market, which is predicted to deliver 20% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

With this information, we can see why Construtora Adolpho Lindenberg is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Bottom Line On Construtora Adolpho Lindenberg's P/E

Construtora Adolpho Lindenberg's recent share price jump still sees its P/E sitting firmly flat on the ground. 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.

As we suspected, our examination of Construtora Adolpho Lindenberg revealed its three-year earnings trends are contributing to its low P/E, given they look worse than current market expectations. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Before you settle on your opinion, we've discovered 5 warning signs for Construtora Adolpho Lindenberg (1 shouldn't be ignored!) that you should be aware of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.