Some Shareholders Feeling Restless Over Caixa Seguridade Participações S.A.'s (BVMF:CXSE3) P/E Ratio

Caixa Seguridade Participações S.A.'s (BVMF:CXSE3) price-to-earnings (or "P/E") ratio of 12.2x might make it look like a sell right now compared to the market in Brazil, where around half of the companies have P/E ratios below 8x and even P/E's below 6x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.

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Recent times haven't been advantageous for Caixa Seguridade Participações as its earnings have been rising slower than most other companies. It might be that many expect the uninspiring earnings performance to recover significantly, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Caixa Seguridade Participações

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Caixa Seguridade Participações .

Is There Enough Growth For Caixa Seguridade Participações?

There's an inherent assumption that a company should outperform the market for P/E ratios like Caixa Seguridade Participações' to be considered reasonable.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 5.1% last year. The latest three year period has also seen an excellent 108% overall rise in EPS, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 11% per year as estimated by the analysts watching the company. With the market predicted to deliver 14% growth per annum, the company is positioned for a weaker earnings result.

In light of this, it's alarming that Caixa Seguridade Participações' P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. Only the boldest would assume these prices are sustainable as this level of earnings growth is likely to weigh heavily on the share price eventually.

What We Can Learn From Caixa Seguridade Participações' P/E?

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Caixa Seguridade Participações currently trades on a much higher than expected P/E since its forecast growth is lower than the wider market. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings aren't likely to support such positive sentiment for long. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

You always need to take note of risks, for example - Caixa Seguridade Participações has 1 warning sign we think you should be aware of.

You might be able to find a better investment than Caixa Seguridade Participações. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.