Improved Earnings Required Before Suzano S.A. (BVMF:SUZB3) Shares Find Their Feet

When close to half the companies in Brazil have price-to-earnings ratios (or "P/E's") above 12x, you may consider Suzano S.A. (BVMF:SUZB3) as a highly attractive investment with its 4x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

While the market has experienced earnings growth lately, Suzano's earnings have gone into reverse gear, which is not great. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

See our latest analysis for Suzano

Keen to find out how analysts think Suzano's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Suzano's Growth Trending?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Suzano's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 3.9% decrease to the company's bottom line. This has erased any of its gains during the last three years, with practically no change in EPS being achieved in total. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Turning to the outlook, the next three years should bring diminished returns, with earnings decreasing 19% per annum as estimated by the twelve analysts watching the company. Meanwhile, the broader market is forecast to expand by 21% each year, which paints a poor picture.

With this information, we are not surprised that Suzano is trading at a P/E lower than the market. 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 Final Word

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Suzano 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.

There are also other vital risk factors to consider and we've discovered 3 warning signs for Suzano (1 is significant!) that you should be aware of before investing here.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.