CSN Mineração S.A.'s (BVMF:CMIN3) Share Price Could Signal Some Risk

With a median price-to-earnings (or "P/E") ratio of close to 9x in Brazil, you could be forgiven for feeling indifferent about CSN Mineração S.A.'s (BVMF:CMIN3) P/E ratio of 7.7x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

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With earnings growth that's inferior to most other companies of late, CSN Mineração has been relatively sluggish. One possibility is that the P/E is moderate because investors think this lacklustre earnings performance will turn around. If not, then existing shareholders may be a little nervous about the viability of the share price.

See our latest analysis for CSN Mineração

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

Does Growth Match The P/E?

There's an inherent assumption that a company should be matching the market for P/E ratios like CSN Mineração's to be considered reasonable.

Taking a look back first, we see that there was hardly any earnings per share growth to speak of for the company over the past year. Whilst it's an improvement, it wasn't enough to get the company out of the hole it was in, with earnings down 22% overall from three years ago. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Shifting to the future, estimates from the eight analysts covering the company suggest earnings growth is heading into negative territory, declining 35% each year over the next three years. With the market predicted to deliver 19% growth per annum, that's a disappointing outcome.

In light of this, it's somewhat alarming that CSN Mineração's P/E sits in line with the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as these declining earnings are likely to weigh on the share price eventually.

What We Can Learn From CSN Mineração's 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.

Our examination of CSN Mineração's analyst forecasts revealed that its outlook for shrinking earnings isn't impacting its P/E as much as we would have predicted. Right now we are uncomfortable with the P/E as the predicted future earnings are unlikely to support a more positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for CSN Mineração (1 can't be ignored) you should be aware of.

You might be able to find a better investment than CSN Mineração. 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.