Investors Give Mitre Realty Empreendimentos e Participações S.A. (BVMF:MTRE3) Shares A 29% Hiding

Mitre Realty Empreendimentos e Participações S.A. (BVMF:MTRE3) shareholders won't be pleased to see that the share price has had a very rough month, dropping 29% and undoing the prior period's positive performance. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 53% loss during that time.

Although its price has dipped substantially, there still wouldn't be many who think Mitre Realty Empreendimentos e Participações' price-to-earnings (or "P/E") ratio of 7x is worth a mention when the median P/E in Brazil is similar at about 8x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Mitre Realty Empreendimentos e Participações hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. One possibility is that the P/E is moderate because investors think this poor earnings performance will turn around. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

View our latest analysis for Mitre Realty Empreendimentos e Participações

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Does Growth Match The P/E?

There's an inherent assumption that a company should be matching the market for P/E ratios like Mitre Realty Empreendimentos e Participações' to be considered reasonable.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 49%. Regardless, EPS has managed to lift by a handy 25% in aggregate from three years ago, thanks to the earlier period of growth. So we can start by confirming that the company has generally done a good job of growing earnings over that time, even though it had some hiccups along the way.

Turning to the outlook, the next year should generate growth of 195% as estimated by the three analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 17%, which is noticeably less attractive.

With this information, we find it interesting that Mitre Realty Empreendimentos e Participações is trading at a fairly similar P/E to the market. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Bottom Line On Mitre Realty Empreendimentos e Participações' P/E

With its share price falling into a hole, the P/E for Mitre Realty Empreendimentos e Participações looks quite average now. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Mitre Realty Empreendimentos e Participações currently trades on a lower than expected P/E since its forecast growth is higher than the wider market. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Having said that, be aware Mitre Realty Empreendimentos e Participações is showing 5 warning signs in our investment analysis, and 1 of those makes us a bit uncomfortable.

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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