Grupo SBF S.A.'s (BVMF:SBFG3) Shares Leap 28% Yet They're Still Not Telling The Full Story

Grupo SBF S.A. (BVMF:SBFG3) shares have had a really impressive month, gaining 28% after a shaky period beforehand. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 25% in the last twelve months.

In spite of the firm bounce in price, there still wouldn't be many who think Grupo SBF's price-to-earnings (or "P/E") ratio of 8.1x is worth a mention when the median P/E in Brazil is similar at about 9x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

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Grupo SBF could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. One possibility is that the P/E is moderate because investors think this poor earnings performance will turn around. If not, then existing shareholders may be a little nervous about the viability of the share price.

Check out 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.

Is There Some Growth For Grupo SBF?

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

Retrospectively, the last year delivered a frustrating 31% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 28% in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the seven analysts covering the company suggest earnings should grow by 20% each year over the next three years. Meanwhile, the rest of the market is forecast to only expand by 17% per year, which is noticeably less attractive.

In light of this, it's curious that Grupo SBF's P/E sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Bottom Line On Grupo SBF's P/E

Grupo SBF appears to be back in favour with a solid price jump getting its P/E back in line with most other companies. 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.

Our examination of Grupo SBF's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E as much as we would have predicted. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for Grupo SBF with six simple checks on some of these key factors.

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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.