Insufficient Growth At Cyrela Brazil Realty S.A. Empreendimentos e Participações (BVMF:CYRE3) Hampers Share Price

With a price-to-earnings (or "P/E") ratio of 5.8x Cyrela Brazil Realty S.A. Empreendimentos e Participações (BVMF:CYRE3) may be sending bullish signals at the moment, given that almost half of all companies in Brazil have P/E ratios greater than 10x and even P/E's higher than 16x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

We check all companies for important risks. See what we found for Cyrela Brazil Realty Empreendimentos e Participações in our free report.

Cyrela Brazil Realty Empreendimentos e Participações 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.

Check out our latest analysis for Cyrela Brazil Realty Empreendimentos e Participações

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Cyrela Brazil Realty Empreendimentos e Participações.

Does Growth Match The Low P/E?

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.

If we review the last year of earnings growth, the company posted a terrific increase of 79%. The strong recent performance means it was also able to grow EPS by 89% 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.

Turning to the outlook, the next three years should generate growth of 8.0% per year as estimated by the eleven analysts watching the company. That's shaping up to be materially lower than the 14% each year 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. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Cyrela Brazil Realty Empreendimentos e Participações maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

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.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.