Further Upside For Lavvi Empreendimentos Imobiliários S.A. (BVMF:LAVV3) Shares Could Introduce Price Risks After 26% Bounce

Lavvi Empreendimentos Imobiliários S.A. (BVMF:LAVV3) shareholders would be excited to see that the share price has had a great month, posting a 26% gain and recovering from prior weakness. Looking further back, the 17% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Although its price has surged higher, Lavvi Empreendimentos Imobiliários' price-to-earnings (or "P/E") ratio of 5.7x 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 9x and even P/E's above 14x 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.

Recent times have been advantageous for Lavvi Empreendimentos Imobiliários as its earnings have been rising faster than most other companies. 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.

See our latest analysis for Lavvi Empreendimentos Imobiliários

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

Does Growth Match The Low P/E?

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

Retrospectively, the last year delivered an exceptional 77% gain to the company's bottom line. The latest three year period has also seen an excellent 64% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next year should generate growth of 14% as estimated by the five analysts watching the company. That's shaping up to be similar to the 14% growth forecast for the broader market.

With this information, we find it odd that Lavvi Empreendimentos Imobiliários is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

The Bottom Line On Lavvi Empreendimentos Imobiliários' P/E

Lavvi Empreendimentos Imobiliários' stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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 Lavvi Empreendimentos Imobiliários currently trades on a lower than expected P/E since its forecast growth is in line with the wider market. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide more support to the share price.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Lavvi Empreendimentos Imobiliários (1 doesn't sit too well with us) you should be aware of.

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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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.