Yduqs Participações S.A.'s (BVMF:YDUQ3) Share Price Matching Investor Opinion

With a price-to-earnings (or "P/E") ratio of 14.3x Yduqs Participações S.A. (BVMF:YDUQ3) may be sending very bearish signals at the moment, given that almost half of all companies in Brazil have P/E ratios under 8x and even P/E's lower than 6x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

With earnings growth that's inferior to most other companies of late, Yduqs Participações has been relatively sluggish. It might be that many expect the uninspiring earnings performance to recover significantly, 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.

See our latest analysis for Yduqs Participações

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

What Are Growth Metrics Telling Us About The High P/E?

Yduqs Participações' P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Retrospectively, the last year delivered a decent 9.2% gain to the company's bottom line. Pleasingly, EPS has also lifted 68% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 53% each year during the coming three years according to the twelve analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 16% per year, which is noticeably less attractive.

In light of this, it's understandable that Yduqs Participações' 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 Key Takeaway

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

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

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Yduqs Participações (1 is a bit unpleasant) you should be aware of.

Of course, you might also be able to find a better stock than Yduqs Participações. 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.