Why Investors Shouldn't Be Surprised By Moura Dubeux Engenharia S.A.'s (BVMF:MDNE3) 26% Share Price Plunge

Moura Dubeux Engenharia S.A. (BVMF:MDNE3) shareholders that were waiting for something to happen have been dealt a blow with a 26% share price drop in the last month. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 17% in that time.

After such a large drop in price, Moura Dubeux Engenharia's price-to-earnings (or "P/E") ratio of 3.8x might 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 9x and even P/E's above 13x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

Recent times have been advantageous for Moura Dubeux Engenharia as its earnings have been rising faster 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 you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

See our latest analysis for Moura Dubeux Engenharia

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

Is There Any Growth For Moura Dubeux Engenharia?

Moura Dubeux Engenharia's 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 82% gain to the company's bottom line. The latest three year period has also seen an excellent 218% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the five analysts covering the company suggest earnings should grow by 7.6% over the next year. Meanwhile, the rest of the market is forecast to expand by 17%, 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.

What We Can Learn From Moura Dubeux Engenharia's P/E?

Moura Dubeux Engenharia's P/E looks about as weak as its stock price lately. 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 Moura Dubeux Engenharia maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

Before you take the next step, you should know about the 2 warning signs for Moura Dubeux Engenharia (1 makes us a bit uncomfortable!) that we have uncovered.

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.