Helbor Empreendimentos S.A. (BVMF:HBOR3) Surges 30% Yet Its Low P/E Is No Reason For Excitement

Despite an already strong run, Helbor Empreendimentos S.A. (BVMF:HBOR3) shares have been powering on, with a gain of 30% in the last thirty days. Notwithstanding the latest gain, the annual share price return of 6.1% isn't as impressive.

Although its price has surged higher, Helbor Empreendimentos' price-to-earnings (or "P/E") ratio of 6x 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 10x and even P/E's above 16x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

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Earnings have risen firmly for Helbor Empreendimentos recently, which is pleasing to see. It might be that many expect the respectable 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.

See our latest analysis for Helbor Empreendimentos

Although there are no analyst estimates available for Helbor Empreendimentos, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Does Growth Match The Low P/E?

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

Retrospectively, the last year delivered a decent 11% gain to the company's bottom line. Still, lamentably EPS has fallen 32% in aggregate from three years ago, which is disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Comparing that to the market, which is predicted to deliver 14% growth in the next 12 months, the company's downward momentum based on recent medium-term earnings results is a sobering picture.

In light of this, it's understandable that Helbor Empreendimentos' P/E would sit below the majority of other companies. However, we think shrinking earnings are unlikely to lead to a stable P/E over the longer term, which could set up shareholders for future disappointment. Even just maintaining these prices could be difficult to achieve as recent earnings trends are already weighing down the shares.

The Key Takeaway

The latest share price surge wasn't enough to lift Helbor Empreendimentos' P/E close to the market median. 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 Helbor Empreendimentos revealed its shrinking earnings over the medium-term are contributing to its low P/E, given the market is set to grow. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price moving strongly in either direction in the near future under these circumstances.

Before you take the next step, you should know about the 5 warning signs for Helbor Empreendimentos (1 shouldn't be ignored!) that we have uncovered.

If you're unsure about the strength of Helbor Empreendimentos' 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.