HBR Realty Empreendimentos Imobiliários S.A. (BVMF:HBRE3) Stock Catapults 29% Though Its Price And Business Still Lag The Market

HBR Realty Empreendimentos Imobiliários S.A. (BVMF:HBRE3) shareholders would be excited to see that the share price has had a great month, posting a 29% gain and recovering from prior weakness. Looking back a bit further, it's encouraging to see the stock is up 61% in the last year.

Although its price has surged higher, HBR Realty Empreendimentos Imobiliários' price-to-earnings (or "P/E") ratio of 5x might still make it look like a strong buy right now compared to the market in Brazil, where around half of the companies have P/E ratios above 11x and even P/E's above 20x 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 so limited.

HBR Realty Empreendimentos Imobiliários certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for HBR Realty Empreendimentos Imobiliários

Keen to find out how analysts think HBR Realty Empreendimentos Imobiliários' 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?

HBR Realty Empreendimentos Imobiliários' P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.

Retrospectively, the last year delivered an exceptional 109% gain to the company's bottom line. Still, EPS has barely risen at all from three years ago in total, which is not ideal. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Shifting to the future, estimates from the one analyst covering the company suggest earnings growth is heading into negative territory, declining 109% over the next year. That's not great when the rest of the market is expected to grow by 23%.

In light of this, it's understandable that HBR Realty Empreendimentos Imobiliários' P/E would sit below the majority of other companies. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Bottom Line On HBR Realty Empreendimentos Imobiliários' P/E

HBR Realty Empreendimentos Imobiliários' recent share price jump still sees its P/E sitting firmly flat on the ground. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of HBR Realty Empreendimentos Imobiliários' analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Before you take the next step, you should know about the 3 warning signs for HBR Realty Empreendimentos Imobiliários (1 is a bit unpleasant!) that we have uncovered.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.