Market Might Still Lack Some Conviction On Mitre Realty Empreendimentos e Participações S.A. (BVMF:MTRE3) Even After 27% Share Price Boost

Mitre Realty Empreendimentos e Participações S.A. (BVMF:MTRE3) shareholders are no doubt pleased to see that the share price has bounced 27% in the last month, although it is still struggling to make up recently lost ground. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 37% in the last twelve months.

In spite of the firm bounce in price, Mitre Realty Empreendimentos e Participações' price-to-earnings (or "P/E") ratio of 6.4x 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 10x and even P/E's above 18x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's superior to most other companies of late, Mitre Realty Empreendimentos e 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.

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What Are Growth Metrics Telling Us About The Low P/E?

The only time you'd be truly comfortable seeing a P/E as low as Mitre Realty Empreendimentos e Participações' is when the company's growth is on track to lag the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 57% last year. The latest three year period has also seen an excellent 62% 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.

Looking ahead now, EPS is anticipated to climb by 49% during the coming year according to the two analysts following the company. With the market only predicted to deliver 20%, the company is positioned for a stronger earnings result.

In light of this, it's peculiar that Mitre Realty Empreendimentos e Participações' P/E sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Final Word

The latest share price surge wasn't enough to lift Mitre Realty Empreendimentos e Participações' P/E close to the market median. 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.

We've established that Mitre Realty Empreendimentos e Participações currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

Before you settle on your opinion, we've discovered 4 warning signs for Mitre Realty Empreendimentos e Participações (2 don't sit too well with us!) that you should be aware of.

If these risks are making you reconsider your opinion on Mitre Realty Empreendimentos e Participações, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.

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