Grupo de Moda SOMA S.A.'s (BVMF:SOMA3) Earnings Haven't Escaped The Attention Of Investors

With a price-to-earnings (or "P/E") ratio of 28.1x Grupo de Moda SOMA S.A. (BVMF:SOMA3) may be sending very bearish signals at the moment, given that almost half of all companies in Brazil have P/E ratios under 9x and even P/E's lower than 5x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

While the market has experienced earnings growth lately, Grupo de Moda SOMA's earnings have gone into reverse gear, which is not great. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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If you'd like to see what analysts are forecasting going forward, you should check out our free report on Grupo de Moda SOMA.

Is There Enough Growth For Grupo de Moda SOMA?

In order to justify its P/E ratio, Grupo de Moda SOMA would need to produce outstanding growth well in excess of the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 44%. The last three years don't look nice either as the company has shrunk EPS by 12% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 44% per year as estimated by the eight analysts watching the company. With the market only predicted to deliver 22% each year, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Grupo de Moda SOMA's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Grupo de Moda SOMA's 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 Grupo de Moda SOMA's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

Plus, you should also learn about this 1 warning sign we've spotted with Grupo de Moda SOMA.

Of course, you might also be able to find a better stock than Grupo de Moda SOMA. So you may wish to see this free collection of other companies that sit on P/E's below 20x and have grown earnings strongly.

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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.