Optimistic Investors Push Intelbras S.A. - Indústria de Telecomunicação Eletrônica Brasileira (BVMF:INTB3) Shares Up 28% But Growth Is Lacking

Despite an already strong run, Intelbras S.A. - Indústria de Telecomunicação Eletrônica Brasileira (BVMF:INTB3) shares have been powering on, with a gain of 28% in the last thirty days. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

After such a large jump in price, Intelbras - Indústria de Telecomunicação Eletrônica Brasileira's price-to-earnings (or "P/E") ratio of 23.9x might make it look like a strong sell right now compared to the market in Brazil, where around half of the companies have P/E ratios below 15x and even P/E's below 8x are quite common. 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.

Recent times have been advantageous for Intelbras - Indústria de Telecomunicação Eletrônica Brasileira as its earnings have been rising faster than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Intelbras - Indústria de Telecomunicação Eletrônica Brasileira.

How Is Intelbras - Indústria de Telecomunicação Eletrônica Brasileira's Growth Trending?

Intelbras - Indústria de Telecomunicação Eletrônica Brasileira's 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 74% gain to the company's bottom line. Pleasingly, EPS has also lifted 114% in aggregate from three years ago, thanks to the last 12 months of growth. 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 7.3% per year as estimated by the five analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 16% each year, which is noticeably more attractive.

In light of this, it's alarming that Intelbras - Indústria de Telecomunicação Eletrônica Brasileira's P/E sits above the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as this level of earnings growth is likely to weigh heavily on the share price eventually.

The Final Word

Shares in Intelbras - Indústria de Telecomunicação Eletrônica Brasileira have built up some good momentum lately, which has really inflated its P/E. 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 Intelbras - Indústria de Telecomunicação Eletrônica Brasileira's analyst forecasts revealed that its inferior earnings outlook isn't impacting its high P/E anywhere near as much as we would have predicted. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings aren't likely to support such positive sentiment for long. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Before you take the next step, you should know about the 3 warning signs for Intelbras - Indústria de Telecomunicação Eletrônica Brasileira (1 is significant!) that we have uncovered.

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. 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.
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