Moura Dubeux Engenharia S.A.'s (BVMF:MDNE3) Shares Bounce 28% But Its Business Still Trails The Market

Moura Dubeux Engenharia S.A. (BVMF:MDNE3) shares have continued their recent momentum with a 28% gain in the last month alone. Looking further back, the 16% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

In spite of the firm bounce in price, Moura Dubeux Engenharia may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 5.2x, since almost half of all companies in Brazil have P/E ratios greater than 9x and even P/E's higher than 15x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

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With earnings growth that's superior to most other companies of late, Moura Dubeux Engenharia 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.

See our latest analysis for Moura Dubeux Engenharia

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How Is Moura Dubeux Engenharia's Growth Trending?

Moura Dubeux Engenharia's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 63% last year. The strong recent performance means it was also able to grow EPS by 205% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next year should generate growth of 9.6% as estimated by the four analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 12%, which is noticeably more attractive.

With this information, we can see why Moura Dubeux Engenharia is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

Despite Moura Dubeux Engenharia's shares building up a head of steam, its P/E still lags most other companies. 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.

As we suspected, our examination of Moura Dubeux Engenharia's analyst forecasts revealed that its inferior earnings outlook 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.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Moura Dubeux Engenharia that you should be aware of.

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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.