Investors Aren't Buying EZTEC Empreendimentos e Participações S.A.'s (BVMF:EZTC3) Earnings

When close to half the companies in Brazil have price-to-earnings ratios (or "P/E's") above 9x, you may consider EZTEC Empreendimentos e Participações S.A. (BVMF:EZTC3) as an attractive investment with its 6.6x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

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With earnings growth that's superior to most other companies of late, EZTEC Empreendimentos e Participações has been doing relatively well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for EZTEC Empreendimentos e Participações

Want the full picture on analyst estimates for the company? Then our free report on EZTEC Empreendimentos e Participações will help you uncover what's on the horizon.

What Are Growth Metrics Telling Us About The Low P/E?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 85% last year. As a result, it also grew EPS by 24% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Shifting to the future, estimates from the seven analysts covering the company suggest earnings should grow by 1.5% each year over the next three years. That's shaping up to be materially lower than the 17% each year growth forecast for the broader market.

With this information, we can see why EZTEC Empreendimentos e Participações is trading at a P/E lower than the market. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Bottom Line On EZTEC 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.

We've established that EZTEC 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.

You always need to take note of risks, for example - EZTEC Empreendimentos e Participações has 1 warning sign we think you should be aware of.

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.