Mitre Realty Empreendimentos e Participações S.A. (BVMF:MTRE3) Stock Catapults 30% Though Its Price And Business Still Lag The Market

Mitre Realty Empreendimentos e Participações S.A. (BVMF:MTRE3) shares have had a really impressive month, gaining 30% after a shaky period beforehand. Looking back a bit further, it's encouraging to see the stock is up 65% in the last year.

In spite of the firm bounce in price, Mitre Realty Empreendimentos e Participações may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 7.3x, since almost half of all companies in Brazil have P/E ratios greater than 11x and even P/E's higher than 19x are not unusual. 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 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.

Check out our latest analysis for Mitre Realty Empreendimentos e Participações

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Mitre Realty Empreendimentos e Participações.

How Is Mitre Realty Empreendimentos e Participações' Growth Trending?

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.

If we review the last year of earnings growth, the company posted a terrific increase of 137%. The latest three year period has also seen an excellent 122% 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.

Looking ahead now, EPS is anticipated to slump, contracting by 8.9% during the coming year according to the dual analysts following the company. Meanwhile, the broader market is forecast to expand by 23%, which paints a poor picture.

With this information, we are not surprised that Mitre Realty Empreendimentos e Participações is trading at a P/E lower than the market. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

What We Can Learn From Mitre Realty Empreendimentos e Participações' P/E?

Mitre Realty Empreendimentos e Participações' stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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 Mitre Realty Empreendimentos e Participações' analyst forecasts revealed that its outlook for shrinking earnings 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. 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 4 warning signs for Mitre Realty Empreendimentos e Participações (3 don't sit too well with us!) that we have uncovered.

Of course, you might also be able to find a better stock than Mitre Realty Empreendimentos e Participações. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.