Aliansce Sonae Shopping Centers S.A.'s (BVMF:ALSO3) Earnings Haven't Escaped The Attention Of Investors

When close to half the companies in Brazil have price-to-earnings ratios (or "P/E's") below 8x, you may consider Aliansce Sonae Shopping Centers S.A. (BVMF:ALSO3) as a stock to avoid entirely with its 17x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Recent times have been advantageous for Aliansce Sonae Shopping Centers as its earnings have been rising faster than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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Is There Enough Growth For Aliansce Sonae Shopping Centers?

In order to justify its P/E ratio, Aliansce Sonae Shopping Centers would need to produce outstanding growth well in excess of the market.

Retrospectively, the last year delivered an exceptional 169% gain to the company's bottom line. The latest three year period has also seen an excellent 63% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 18% each year during the coming three years according to the seven analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 15% per annum, which is noticeably less attractive.

In light of this, it's understandable that Aliansce Sonae Shopping Centers' P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Aliansce Sonae Shopping Centers maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Aliansce Sonae Shopping Centers that you need to be mindful of.

If you're unsure about the strength of Aliansce Sonae Shopping Centers' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.