Grupo Mateus S.A.'s (BVMF:GMAT3) P/E Is On The Mark

When close to half the companies in Brazil have price-to-earnings ratios (or "P/E's") below 8x, you may consider Grupo Mateus S.A. (BVMF:GMAT3) as a stock to potentially avoid with its 10.9x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

There hasn't been much to differentiate Grupo Mateus' and the market's earnings growth lately. It might be that many expect the mediocre earnings performance to strengthen positively, which has kept the P/E from falling. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Grupo Mateus

Keen to find out how analysts think Grupo Mateus' future stacks up against the industry? In that case, our free report is a great place to start.

Does Growth Match The High P/E?

Grupo Mateus' P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.

Retrospectively, the last year delivered a decent 14% gain to the company's bottom line. The latest three year period has also seen an excellent 77% overall rise in EPS, aided somewhat by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 18% per year as estimated by the ten analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 15% per annum, which is noticeably less attractive.

In light of this, it's understandable that Grupo Mateus' 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 Mateus' 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.

We've established that Grupo Mateus maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. 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.

The company's balance sheet is another key area for risk analysis. You can assess many of the main risks through our free balance sheet analysis for Grupo Mateus with six simple checks.

If these risks are making you reconsider your opinion on Grupo Mateus, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.