There's No Escaping Marfrig Global Foods S.A.'s (BVMF:MRFG3) Muted Earnings

When close to half the companies in Brazil have price-to-earnings ratios (or "P/E's") above 14x, you may consider Marfrig Global Foods S.A. (BVMF:MRFG3) as a highly attractive investment with its 3.5x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

Recent times have been advantageous for Marfrig Global Foods as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for Marfrig Global Foods

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

How Is Marfrig Global Foods' Growth Trending?

In order to justify its P/E ratio, Marfrig Global Foods would need to produce anemic growth that's substantially trailing the market.

Retrospectively, the last year delivered an exceptional 131% gain to the company's bottom line. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Turning to the outlook, the next three years should bring diminished returns, with earnings decreasing 27% per year as estimated by the ten analysts watching the company. That's not great when the rest of the market is expected to grow by 11% per year.

With this information, we are not surprised that Marfrig Global Foods is trading at a P/E lower than the market. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Bottom Line On Marfrig Global Foods' P/E

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Marfrig Global Foods maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

You need to take note of risks, for example - Marfrig Global Foods has 3 warning signs (and 1 which is significant) we think you should know about.

If you're unsure about the strength of Marfrig Global Foods' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

When trading stocks or any other investment, use the platform considered by many to be the Professional's Gateway to the Worlds Market, Interactive Brokers. You get the lowest-cost* trading on stocks, options, futures, forex, bonds and funds worldwide from a single integrated account. Promoted

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.
^*Interactive Brokers Rated Lowest Cost Broker by StockBrokers.com Annual Online Review 2020

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