Little Excitement Around Investimentos Bemge S.A.'s (BVMF:FIGE3) Earnings As Shares Take 26% Pounding

The Investimentos Bemge S.A. (BVMF:FIGE3) share price has softened a substantial 26% over the previous 30 days, handing back much of the gains the stock has made lately. Looking at the bigger picture, even after this poor month the stock is up 25% in the last year.

Following the heavy fall in price, given about half the companies in Brazil have price-to-earnings ratios (or "P/E's") above 10x, you may consider Investimentos Bemge as a highly attractive investment with its 2.9x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

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For instance, Investimentos Bemge's receding earnings in recent times would have to be some food for thought. It might be that many expect the disappointing earnings performance to continue or accelerate, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

See our latest analysis for Investimentos Bemge

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Investimentos Bemge's earnings, revenue and cash flow.

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

Investimentos Bemge's P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 4.2%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 29% overall rise in EPS. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of earnings growth.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 13% shows it's noticeably less attractive on an annualised basis.

In light of this, it's understandable that Investimentos Bemge's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Key Takeaway

Investimentos Bemge's P/E looks about as weak as its stock price lately. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Investimentos Bemge maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

It is also worth noting that we have found 3 warning signs for Investimentos Bemge (2 don't sit too well with us!) that you need to take into consideration.

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.

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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.