Why Investors Shouldn't Be Surprised By Veste S.A. Estilo's (BVMF:VSTE3) P/E

Veste S.A. Estilo's (BVMF:VSTE3) price-to-earnings (or "P/E") ratio of 70.1x might make it look like a strong sell right now compared to the market in Brazil, where around half of the companies have P/E ratios below 10x and even P/E's below 7x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Veste Estilo could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Veste Estilo

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Veste Estilo.

Is There Enough Growth For Veste Estilo?

The only time you'd be truly comfortable seeing a P/E as steep as Veste Estilo's is when the company's growth is on track to outshine the market decidedly.

Retrospectively, the last year delivered a frustrating 61% decrease to the company's bottom line. At least EPS has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 454% during the coming year according to the sole analyst following the company. With the market only predicted to deliver 18%, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Veste Estilo's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On Veste Estilo's P/E

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Veste Estilo's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Veste Estilo that you should be aware of.

Of course, you might also be able to find a better stock than Veste Estilo. So you may wish to see this free collection of other companies that have reasonable P/E ratios 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.