Slammed 27% Helbor Empreendimentos S.A. (BVMF:HBOR3) Screens Well Here But There Might Be A Catch

Helbor Empreendimentos S.A. (BVMF:HBOR3) shares have retraced a considerable 27% in the last month, reversing a fair amount of their solid recent performance. Longer-term, the stock has been solid despite a difficult 30 days, gaining 14% in the last year.

Since its price has dipped substantially, Helbor Empreendimentos may be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 8.5x, since almost half of all companies in Brazil have P/E ratios greater than 12x and even P/E's higher than 20x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Helbor Empreendimentos could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Check out our latest analysis for Helbor Empreendimentos

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

What Are Growth Metrics Telling Us About 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.

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 25%. This has erased any of its gains during the last three years, with practically no change in EPS being achieved in total. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Shifting to the future, estimates from the only analyst covering the company suggest earnings should grow by 69% over the next year. With the market only predicted to deliver 21%, the company is positioned for a stronger earnings result.

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 Final Word

The softening of Helbor Empreendimentos' shares means its P/E is now sitting at a pretty low level. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

Our examination of Helbor Empreendimentos' analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. 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. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

Don't forget that there may be other risks. For instance, we've identified 6 warning signs for Helbor Empreendimentos (1 doesn't sit too well with us) you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.