Little Excitement Around Cyrela Brazil Realty S.A. Empreendimentos e Participações' (BVMF:CYRE3) Earnings

When close to half the companies in Brazil have price-to-earnings ratios (or "P/E's") above 10x, you may consider Cyrela Brazil Realty S.A. Empreendimentos e Participações (BVMF:CYRE3) as an attractive investment with its 7.8x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Earnings have risen firmly for Cyrela Brazil Realty Empreendimentos e Participações recently, which is pleasing to see. It might be that many expect the respectable earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

View our latest analysis for Cyrela Brazil Realty Empreendimentos e Participações

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Cyrela Brazil Realty Empreendimentos e Participações will help you shine a light on its historical performance.

How Is Cyrela Brazil Realty Empreendimentos e Participações' Growth Trending?

Cyrela Brazil Realty Empreendimentos e Participações' P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

If we review the last year of earnings growth, the company posted a terrific increase of 28%. However, this wasn't enough as the latest three year period has seen a very unpleasant 49% drop in EPS in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

In contrast to the company, the rest of the market is expected to grow by 19% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

In light of this, it's understandable that Cyrela Brazil Realty Empreendimentos e Participações' P/E would sit below the majority of other companies. However, we think shrinking earnings are unlikely to lead to a stable P/E over the longer term, which could set up shareholders for future disappointment. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

What We Can Learn From Cyrela Brazil Realty Empreendimentos e Participações' P/E?

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 Cyrela Brazil Realty Empreendimentos e Participações revealed its shrinking earnings over the medium-term are contributing to its low P/E, given the market is set to grow. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. If recent medium-term earnings trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 1 warning sign for Cyrela Brazil Realty Empreendimentos e Participações 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.

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.