Getting In Cheap On Intelbras S.A. - Indústria de Telecomunicação Eletrônica Brasileira (BVMF:INTB3) Is Unlikely

With a median price-to-earnings (or "P/E") ratio of close to 11x in Brazil, you could be forgiven for feeling indifferent about Intelbras S.A. - Indústria de Telecomunicação Eletrônica Brasileira's (BVMF:INTB3) P/E ratio of 13x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

With earnings growth that's superior to most other companies of late, Intelbras - Indústria de Telecomunicação Eletrônica Brasileira has been doing relatively well. One possibility is that the P/E is moderate because investors think this strong earnings performance might be about to tail off. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

View our latest analysis for Intelbras - Indústria de Telecomunicação Eletrônica Brasileira

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Does Growth Match The P/E?

There's an inherent assumption that a company should be matching the market for P/E ratios like Intelbras - Indústria de Telecomunicação Eletrônica Brasileira's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 24% last year. Pleasingly, EPS has also lifted 133% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 13% each year as estimated by the eight analysts watching the company. With the market predicted to deliver 20% growth per year, the company is positioned for a weaker earnings result.

In light of this, it's curious that Intelbras - Indústria de Telecomunicação Eletrônica Brasileira's P/E sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

The Key Takeaway

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.

Our examination of Intelbras - Indústria de Telecomunicação Eletrônica Brasileira's analyst forecasts revealed that its inferior earnings outlook isn't impacting its P/E as much as we would have predicted. Right now we are uncomfortable with the P/E as the predicted future earnings aren't likely to support a more positive sentiment for long. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

Before you settle on your opinion, we've discovered 1 warning sign for Intelbras - Indústria de Telecomunicação Eletrônica Brasileira that you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.