Earnings Tell The Story For Oncoclínicas do Brasil Serviços Médicos S.A. (BVMF:ONCO3) As Its Stock Soars 27%

Oncoclínicas do Brasil Serviços Médicos S.A. (BVMF:ONCO3) shareholders would be excited to see that the share price has had a great month, posting a 27% gain and recovering from prior weakness. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 24% over that time.

Following the firm bounce in price, Oncoclínicas do Brasil Serviços Médicos may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 18.5x, since almost half of all companies in Brazil have P/E ratios under 10x 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.

Oncoclínicas do Brasil Serviços Médicos certainly has been doing a good job lately as it's been growing earnings more than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for Oncoclínicas do Brasil Serviços Médicos

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Does Growth Match The High P/E?

In order to justify its P/E ratio, Oncoclínicas do Brasil Serviços Médicos would need to produce outstanding growth well in excess of the market.

Retrospectively, the last year delivered an exceptional 113% gain to the company's bottom line. Still, EPS has barely risen at all from three years ago in total, which is not ideal. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 33% each year during the coming three years according to the eight analysts following the company. That's shaping up to be materially higher than the 19% per annum growth forecast for the broader market.

With this information, we can see why Oncoclínicas do Brasil Serviços Médicos is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

Shares in Oncoclínicas do Brasil Serviços Médicos have built up some good momentum lately, which has really inflated its P/E. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Oncoclínicas do Brasil Serviços Médicos' analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. 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.

Having said that, be aware Oncoclínicas do Brasil Serviços Médicos is showing 2 warning signs in our investment analysis, you should know about.

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.

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