Optimistic Investors Push Helbor Empreendimentos S.A. (BVMF:HBOR3) Shares Up 26% But Growth Is Lacking

Despite an already strong run, Helbor Empreendimentos S.A. (BVMF:HBOR3) shares have been powering on, with a gain of 26% in the last thirty days. The last 30 days bring the annual gain to a very sharp 82%.

In spite of the firm bounce in price, there still wouldn't be many who think Helbor Empreendimentos' price-to-earnings (or "P/E") ratio of 9.7x is worth a mention when the median P/E in Brazil is similar at about 9x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

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As an illustration, earnings have deteriorated at Helbor Empreendimentos over the last year, which is not ideal at all. One possibility is that the P/E is moderate because investors think the company might still do enough to be in line with the broader market in the near future. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

See our latest analysis for Helbor Empreendimentos

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Helbor Empreendimentos' earnings, revenue and cash flow.

Is There Some Growth For Helbor Empreendimentos?

There's an inherent assumption that a company should be matching the market for P/E ratios like Helbor Empreendimentos' to be considered reasonable.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 4.7%. As a result, earnings from three years ago have also fallen 24% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 16% shows it's an unpleasant look.

With this information, we find it concerning that Helbor Empreendimentos is trading at a fairly similar P/E to the market. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the recent negative growth rates.

The Key Takeaway

Helbor Empreendimentos' stock has a lot of momentum behind it lately, which has brought its P/E level with the market. 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 higher than expected P/E since its recent earnings have been in decline over the medium-term. When we see earnings heading backwards and underperforming the market forecasts, we suspect the share price is at risk of declining, sending the moderate P/E lower. If recent medium-term earnings trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

And what about other risks? Every company has them, and we've spotted 4 warning signs for Helbor Empreendimentos (of which 2 shouldn't be ignored!) you should know about.

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.