There's No Escaping CSN Mineração S.A.'s (BVMF:CMIN3) Muted Earnings Despite A 28% Share Price Rise

CSN Mineração S.A. (BVMF:CMIN3) shareholders have had their patience rewarded with a 28% share price jump in the last month. Looking back a bit further, it's encouraging to see the stock is up 47% in the last year.

Even after such a large jump in price, given about half the companies in Brazil have price-to-earnings ratios (or "P/E's") above 10x, you may still consider CSN Mineração as an attractive investment with its 7.3x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

CSN Mineração certainly has been doing a good job lately as it's been growing earnings more than most other companies. 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

Want the full picture on analyst estimates for the company? Then our free report on CSN Mineração will help you uncover what's on the horizon.

How Is CSN Mineração's Growth Trending?

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 93%. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 40% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Shifting to the future, estimates from the eleven analysts covering the company suggest earnings growth is heading into negative territory, declining 34% per annum over the next three years. That's not great when the rest of the market is expected to grow by 17% per year.

In light of this, it's understandable that CSN Mineração's P/E would sit below the majority of other companies. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Key Takeaway

Despite CSN Mineração's shares building up a head of steam, its P/E still lags most other companies. 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.

As we suspected, our examination of CSN Mineração's analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

There are also other vital risk factors to consider and we've discovered 2 warning signs for CSN Mineração (1 is concerning!) that you should be aware of before investing here.

If you're unsure about the strength of CSN Mineração's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.