With Neogrid Participações S.A. (BVMF:NGRD3) It Looks Like You'll Get What You Pay For

When close to half the companies in Brazil have price-to-earnings ratios (or "P/E's") below 15x, you may consider Neogrid Participações S.A. (BVMF:NGRD3) as a stock to avoid entirely with its 71.3x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

Neogrid Participações certainly has been doing a good job lately as it's been growing earnings more than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Neogrid Participações

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

How Is Neogrid Participações' Growth Trending?

Neogrid Participações' P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Retrospectively, the last year delivered an exceptional 46% gain to the company's bottom line. The latest three year period has also seen an excellent 77% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 46% per year 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.

In light of this, it's understandable that Neogrid Participações' 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.

What We Can Learn From Neogrid Participações' P/E?

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Neogrid Participações' analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

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

Of course, you might also be able to find a better stock than Neogrid Participações. So you may wish to see this free collection of other companies that sit on P/E's below 20x and have grown earnings strongly.

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