Further Upside For Plano & Plano Desenvolvimento Imobiliário S.A. (BVMF:PLPL3) Shares Could Introduce Price Risks After 26% Bounce

Plano & Plano Desenvolvimento Imobiliário S.A. (BVMF:PLPL3) shareholders are no doubt pleased to see that the share price has bounced 26% in the last month, although it is still struggling to make up recently lost ground. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 11% over that time.

Even after such a large jump in price, Plano & Plano Desenvolvimento Imobiliário may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 6.5x, since almost half of all companies in Brazil have P/E ratios greater than 9x and even P/E's higher than 14x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Plano & Plano Desenvolvimento Imobiliário certainly has been doing a good job lately as it's been growing earnings more than most other companies. 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.

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Is There Any Growth For Plano & Plano Desenvolvimento Imobiliário?

There's an inherent assumption that a company should underperform the market for P/E ratios like Plano & Plano Desenvolvimento Imobiliário's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 39%. Pleasingly, EPS has also lifted 122% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 36% during the coming year according to the eight analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 15%, which is noticeably less attractive.

In light of this, it's peculiar that Plano & Plano Desenvolvimento Imobiliário's P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

What We Can Learn From Plano & Plano Desenvolvimento Imobiliário's P/E?

Despite Plano & Plano Desenvolvimento Imobiliário's shares building up a head of steam, its P/E still lags most other companies. 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.

We've established that Plano & Plano Desenvolvimento Imobiliário currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

You always need to take note of risks, for example - Plano & Plano Desenvolvimento Imobiliário has 1 warning sign we think 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.