Grupo SBF S.A. (BVMF:SBFG3) Soars 26% But It's A Story Of Risk Vs Reward

Grupo SBF S.A. (BVMF:SBFG3) shareholders would be excited to see that the share price has had a great month, posting a 26% gain and recovering from prior weakness. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 5.4% over the last year.

In spite of the firm bounce in price, Grupo SBF may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 5.6x, since almost half of all companies in Brazil have P/E ratios greater than 9x and even P/E's higher than 15x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Grupo SBF 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 Grupo SBF

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

How Is Grupo SBF's Growth Trending?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 217% last year. As a result, it also grew EPS by 9.8% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

Shifting to the future, estimates from the five analysts covering the company suggest earnings should grow by 14% per year over the next three years. That's shaping up to be similar to the 15% per annum growth forecast for the broader market.

With this information, we find it odd that Grupo SBF is trading at a P/E lower than the market. It may be that most investors are not convinced the company can achieve future growth expectations.

What We Can Learn From Grupo SBF's P/E?

Grupo SBF's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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 Grupo SBF currently trades on a lower than expected P/E since its forecast growth is in line with the wider market. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide more support to the share price.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Grupo SBF that you should be aware of.

You might be able to find a better investment than Grupo SBF. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (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.