Why Investors Shouldn't Be Surprised By BR Advisory Partners Participações S.A.'s (BVMF:BRBI11) P/E

By
Simply Wall St
Published
November 30, 2021
BOVESPA:BRBI11
Source: Shutterstock

With a price-to-earnings (or "P/E") ratio of 40.1x BR Advisory Partners Participações S.A. (BVMF:BRBI11) 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. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

BR Advisory Partners Participações has been doing a decent job lately as it's been growing earnings at a reasonable pace. One possibility is that the P/E is high because investors think this good earnings growth will be enough to outperform the broader market in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for BR Advisory Partners Participações

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BOVESPA:BRBI11 Price Based on Past Earnings December 1st 2021
Although there are no analyst estimates available for BR Advisory Partners Participações, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Enough Growth For BR Advisory Partners Participações?

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

Taking a look back first, we see that the company managed to grow earnings per share by a handy 2.8% last year. The latest three year period has also seen an excellent 99% overall rise in EPS, aided somewhat by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Comparing that to the market, which is only predicted to deliver 14% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

In light of this, it's understandable that BR Advisory Partners Participações' P/E sits above the majority of other companies. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse.

What We Can Learn From BR Advisory Partners Participações' P/E?

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.

As we suspected, our examination of BR Advisory Partners Participações revealed its three-year earnings trends are contributing to its high P/E, given they look better than current market expectations. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

It is also worth noting that we have found 1 warning sign for BR Advisory Partners Participações that you need to take into consideration.

If P/E ratios interest you, you may wish to see this free collection of other companies that have grown earnings strongly and trade on P/E's below 20x.

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