JHSF Participações S.A. (BVMF:JHSF3) Surges 30% Yet Its Low P/E Is No Reason For Excitement

Despite an already strong run, JHSF Participações S.A. (BVMF:JHSF3) shares have been powering on, with a gain of 30% in the last thirty days. Taking a wider view, although not as strong as the last month, the full year gain of 18% is also fairly reasonable.

In spite of the firm bounce in price, JHSF Participações may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 4x, since almost half of all companies in Brazil have P/E ratios greater than 10x and even P/E's higher than 16x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

Our free stock report includes 4 warning signs investors should be aware of before investing in JHSF Participações. Read for free now.

With earnings growth that's superior to most other companies of late, JHSF Participações has been doing relatively well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for JHSF Participações

If you'd like to see what analysts are forecasting going forward, you should check out our free report on JHSF Participações.

How Is JHSF Participações' Growth Trending?

JHSF Participações' 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 89% gain to the company's bottom line. Still, incredibly EPS has fallen 13% in total from three years ago, which is quite disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Shifting to the future, estimates from the two analysts covering the company suggest earnings growth is heading into negative territory, declining 33% over the next year. Meanwhile, the broader market is forecast to expand by 12%, which paints a poor picture.

In light of this, it's understandable that JHSF Participações' P/E would sit below the majority of other companies. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

What We Can Learn From JHSF Participações' P/E?

Shares in JHSF Participações are going to need a lot more upward momentum to get the company's P/E out of its slump. 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 JHSF Participações' analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

There are also other vital risk factors to consider and we've discovered 4 warning signs for JHSF Participações (2 are a bit unpleasant!) that you should be aware of before investing here.

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.

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