Some Shareholders Feeling Restless Over CSN Mineração S.A.'s (BVMF:CMIN3) P/E Ratio

It's not a stretch to say that CSN Mineração S.A.'s (BVMF:CMIN3) price-to-earnings (or "P/E") ratio of 8.7x right now seems quite "middle-of-the-road" compared to the market in Brazil, where the median P/E ratio is around 8x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Recent times have been advantageous for CSN Mineração as its earnings have been rising faster than most other companies. One possibility is that the P/E is moderate because investors think this strong earnings performance might be about to tail off. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

View 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.

How Is CSN Mineração's Growth Trending?

In order to justify its P/E ratio, CSN Mineração would need to produce growth that's similar to the market.

Retrospectively, the last year delivered an exceptional 26% gain to the company's bottom line. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 44% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to slump, contracting by 32% each year during the coming three years according to the ten analysts following the company. With the market predicted to deliver 16% growth each year, that's a disappointing outcome.

With this information, we find it concerning that CSN Mineração is trading at a fairly similar P/E to the market. 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.

The Key Takeaway

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.

We've established that CSN Mineração currently trades on a higher than expected P/E for a company whose earnings are forecast to decline. Right now we are uncomfortable with the P/E as the predicted future earnings are unlikely to support a more positive sentiment for long. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

And what about other risks? Every company has them, and we've spotted 2 warning signs for CSN Mineração (of which 1 is potentially serious!) you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.