After Leaping 26% Lavvi Empreendimentos Imobiliários S.A. (BVMF:LAVV3) Shares Are Not Flying Under The Radar

Lavvi Empreendimentos Imobiliários S.A. (BVMF:LAVV3) shareholders would be excited to see that the share price has had a great month, posting a 26% gain and recovering from prior weakness. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

After such a large jump in price, given close to half the companies in Brazil have price-to-earnings ratios (or "P/E's") below 16x, you may consider Lavvi Empreendimentos Imobiliários as a stock to potentially avoid with its 19.3x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Lavvi Empreendimentos Imobiliários certainly has been doing a good job lately as it's been growing earnings more than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

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Does Growth Match The High P/E?

The only time you'd be truly comfortable seeing a P/E as high as Lavvi Empreendimentos Imobiliários' is when the company's growth is on track to outshine the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 34% last year. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Looking ahead now, EPS is anticipated to climb by 28% during the coming year according to the two analysts following the company. That's shaping up to be materially higher than the 23% growth forecast for the broader market.

In light of this, it's understandable that Lavvi Empreendimentos Imobiliários' P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On Lavvi Empreendimentos Imobiliários' P/E

The large bounce in Lavvi Empreendimentos Imobiliários' shares has lifted the company's P/E to a fairly high level. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Lavvi Empreendimentos Imobiliários 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.

It is also worth noting that we have found 1 warning sign for Lavvi Empreendimentos Imobiliários that you need to take into consideration.

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

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