Cyrela Brazil Realty S.A. Empreendimentos e Participações (BVMF:CYRE3) Surges 26% Yet Its Low P/E Is No Reason For Excitement

Those holding Cyrela Brazil Realty S.A. Empreendimentos e Participações (BVMF:CYRE3) shares would be relieved that the share price has rebounded 26% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 6.5% over the last year.

Although its price has surged higher, Cyrela Brazil Realty Empreendimentos e Participações' price-to-earnings (or "P/E") ratio of 5.3x might still 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 9x and even P/E's above 14x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Recent times have been advantageous for Cyrela Brazil Realty Empreendimentos e Participações as its earnings have been rising faster 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 Cyrela Brazil Realty Empreendimentos e Participações

Keen to find out how analysts think Cyrela Brazil Realty Empreendimentos e Participações' future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Growth For Cyrela Brazil Realty Empreendimentos e Participações?

The only time you'd be truly comfortable seeing a P/E as low as Cyrela Brazil Realty Empreendimentos e Participações' is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered an exceptional 54% gain to the company's bottom line. Pleasingly, EPS has also lifted 56% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 6.4% during the coming year according to the analysts following the company. That's shaping up to be materially lower than the 14% growth forecast for the broader market.

In light of this, it's understandable that Cyrela Brazil Realty Empreendimentos e Participações' P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Key Takeaway

Cyrela Brazil Realty Empreendimentos e Participações' stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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 Cyrela Brazil Realty Empreendimentos e Participações' analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Cyrela Brazil Realty Empreendimentos e Participações with six simple checks.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and 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.