Market Might Still Lack Some Conviction On Moura Dubeux Engenharia S.A. (BVMF:MDNE3) Even After 35% Share Price Boost

Moura Dubeux Engenharia S.A. (BVMF:MDNE3) shares have had a really impressive month, gaining 35% after a shaky period beforehand. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 15% over that time.

Even after such a large jump in price, given close to half the companies in Brazil have price-to-earnings ratios (or "P/E's") above 10x, you may still consider Moura Dubeux Engenharia as an attractive investment with its 6.2x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Moura Dubeux Engenharia certainly has been doing a good job lately as it's been growing earnings more than most other companies. 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.

See our latest analysis for Moura Dubeux Engenharia

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

How Is Moura Dubeux Engenharia's Growth Trending?

Moura Dubeux Engenharia's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

If we review the last year of earnings growth, the company posted a terrific increase of 50%. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Shifting to the future, estimates from the four analysts covering the company suggest earnings should grow by 60% over the next year. Meanwhile, the rest of the market is forecast to only expand by 10%, which is noticeably less attractive.

In light of this, it's peculiar that Moura Dubeux Engenharia's 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 Bottom Line On Moura Dubeux Engenharia's P/E

Moura Dubeux Engenharia's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Moura Dubeux Engenharia currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Many other vital risk factors can be found on the company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Moura Dubeux Engenharia with six simple checks.

If P/E ratios interest you, you may wish to see this free collection of other companies that have grown earnings strongly and trade on P/E's below 20x.

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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.