Fewer Investors Than Expected Jumping On Petroreconcavo S.A. (BVMF:RECV3)

It's not a stretch to say that Petroreconcavo S.A.'s (BVMF:RECV3) price-to-earnings (or "P/E") ratio of 10.3x right now seems quite "middle-of-the-road" compared to the market in Brazil, where the median P/E ratio is around 9x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

With earnings growth that's superior to most other companies of late, Petroreconcavo has been doing relatively well. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. 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 not quite in favour.

Check out our latest analysis for Petroreconcavo

Want the full picture on analyst estimates for the company? Then our free report on Petroreconcavo will help you uncover what's on the horizon.

Does Growth Match The P/E?

The only time you'd be comfortable seeing a P/E like Petroreconcavo's is when the company's growth is tracking the market closely.

If we review the last year of earnings growth, the company posted a terrific increase of 116%. The strong recent performance means it was also able to grow EPS by 133% in total over the last three years. 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 33% per annum as estimated by the six analysts watching the company. That's shaping up to be materially higher than the 23% per annum growth forecast for the broader market.

In light of this, it's curious that Petroreconcavo's P/E sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

What We Can Learn From Petroreconcavo's P/E?

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of Petroreconcavo's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E as much as we would have predicted. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Petroreconcavo (1 is a bit concerning!) that you need to be mindful of.

Of course, you might also be able to find a better stock than Petroreconcavo. So you may wish to see this free collection of other companies that sit on P/E's below 20x 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.