Market Participants Recognise Vitru Brasil Empreendimentos, Participações e Comércio S.A's (BVMF:VTRU3) Earnings Pushing Shares 27% Higher

Vitru Brasil Empreendimentos, Participações e Comércio S.A (BVMF:VTRU3) shares have had a really impressive month, gaining 27% after a shaky period beforehand. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

After such a large jump in price, Vitru Brasil Empreendimentos Participações e Comércio's price-to-earnings (or "P/E") ratio of 17x 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 8x and even P/E's below 6x 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.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

There hasn't been much to differentiate Vitru Brasil Empreendimentos Participações e Comércio's 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.

Check out our latest analysis for Vitru Brasil Empreendimentos Participações e Comércio

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

How Is Vitru Brasil Empreendimentos Participações e Comércio's Growth Trending?

In order to justify its P/E ratio, Vitru Brasil Empreendimentos Participações e Comércio would need to produce outstanding growth well in excess of the market.

If we review the last year of earnings growth, the company posted a worthy increase of 10%. Still, lamentably EPS has fallen 75% in aggregate from three years ago, which is disappointing. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the six analysts covering the company suggest earnings should grow by 25% over the next year. That's shaping up to be materially higher than the 12% growth forecast for the broader market.

With this information, we can see why Vitru Brasil Empreendimentos Participações e Comércio is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

The strong share price surge has got Vitru Brasil Empreendimentos Participações e Comércio's P/E rushing to great heights as well. 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 Vitru Brasil Empreendimentos Participações e Comércio'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. It's hard to see the share price falling strongly in the near future under these circumstances.

Having said that, be aware Vitru Brasil Empreendimentos Participações e Comércio is showing 3 warning signs in our investment analysis, and 1 of those is significant.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.