A Piece Of The Puzzle Missing From Helbor Empreendimentos S.A.'s (BVMF:HBOR3) 29% Share Price Climb

Despite an already strong run, Helbor Empreendimentos S.A. (BVMF:HBOR3) shares have been powering on, with a gain of 29% in the last thirty days. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 36% over that time.

Even after such a large jump in price, Helbor Empreendimentos' price-to-earnings (or "P/E") ratio of 4.4x might still make it look like a buy right now compared to the market in Brazil, where around half of the companies have P/E ratios above 9x and even P/E's above 14x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

Recent earnings growth for Helbor Empreendimentos has been in line with the market. One possibility is that the P/E is low because investors think this modest earnings performance may begin to slide. If you like the company, you'd be hoping this isn't the case so that you could pick up some stock while it's out of favour.

Check out our latest analysis for Helbor Empreendimentos

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

How Is Helbor Empreendimentos' Growth Trending?

Helbor Empreendimentos' P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 11% last year. Ultimately though, it couldn't turn around the poor performance of the prior period, with EPS shrinking 44% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Shifting to the future, estimates from the only analyst covering the company suggest earnings should grow by 170% over the next year. Meanwhile, the rest of the market is forecast to only expand by 12%, which is noticeably less attractive.

In light of this, it's peculiar that Helbor Empreendimentos' P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

The Key Takeaway

The latest share price surge wasn't enough to lift Helbor Empreendimentos' P/E close to the market median. 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 Helbor Empreendimentos currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Before you settle on your opinion, we've discovered 4 warning signs for Helbor Empreendimentos (2 don't sit too well with us!) that you should be aware of.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.