Improved Earnings Required Before CSN Mineração S.A. (BVMF:CMIN3) Shares Find Their Feet

With a price-to-earnings (or "P/E") ratio of 7.4x CSN Mineração S.A. (BVMF:CMIN3) may be sending bullish signals at the moment, given that almost half of all companies in Brazil have P/E ratios greater than 10x and even P/E's higher than 17x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

With earnings growth that's superior to most other companies of late, CSN Mineração has been doing relatively well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. 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 out of favour.

Check out 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.

Is There Any Growth For CSN Mineração?

The only time you'd be truly comfortable seeing a P/E as low as CSN Mineração's is when the company's growth is on track to lag the market.

If we review the last year of earnings growth, the company posted a terrific increase of 32%. However, this wasn't enough as the latest three year period has seen a very unpleasant 40% drop in EPS in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Looking ahead now, EPS is anticipated to slump, contracting by 25% per year during the coming three years according to the ten analysts following the company. That's not great when the rest of the market is expected to grow by 16% per annum.

With this information, we are not surprised that CSN Mineração 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 Final Word

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that CSN Mineração maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

You always need to take note of risks, for example - CSN Mineração has 2 warning signs we think you should be aware of.

Of course, you might also be able to find a better stock than CSN Mineração. So you may wish to see this free collection of other companies that have reasonable P/E ratios 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.