Further Upside For Helbor Empreendimentos S.A. (BVMF:HBOR3) Shares Could Introduce Price Risks After 28% Bounce

Helbor Empreendimentos S.A. (BVMF:HBOR3) shareholders would be excited to see that the share price has had a great month, posting a 28% gain and recovering from prior weakness. Still, the 30-day jump doesn't change the fact that longer term shareholders have seen their stock decimated by the 55% share price drop in the last twelve months.

Even after such a large jump in price, Helbor Empreendimentos' price-to-earnings (or "P/E") ratio of 5.3x 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 11x and even P/E's above 22x 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, Helbor Empreendimentos 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.

See our latest analysis for Helbor Empreendimentos

Keen to find out how analysts think Helbor Empreendimentos' future stacks up against the industry? In that case, our free report is a great place to start.

Does Growth Match The Low P/E?

In order to justify its P/E ratio, Helbor Empreendimentos would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered an exceptional 281% gain to the company's bottom line. Still, EPS has barely risen at all from three years ago in total, which is not ideal. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 30% per annum as estimated by the three analysts watching the company. That's shaping up to be materially higher than the 11% per year growth forecast for the broader market.

With this information, we find it odd that Helbor Empreendimentos is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

What We Can Learn From Helbor Empreendimentos' P/E?

Helbor Empreendimentos' stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Helbor Empreendimentos 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 3 warning signs for Helbor Empreendimentos (1 shouldn't be ignored!) that you should be aware of.

You might be able to find a better investment than Helbor Empreendimentos. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a P/E below 20x (but have proven they can grow earnings).

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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.