Investors Give Livetech da Bahia Indústria e Comércio S.A (BVMF:LVTC3) Shares A 26% Hiding

Livetech da Bahia Indústria e Comércio S.A (BVMF:LVTC3) shareholders that were waiting for something to happen have been dealt a blow with a 26% share price drop in the last month. Longer-term shareholders will rue the drop in the share price, since it's now virtually flat for the year after a promising few quarters.

In spite of the heavy fall in price, there still wouldn't be many who think Livetech da Bahia Indústria e Comércio's price-to-earnings (or "P/E") ratio of 11.3x is worth a mention when the median P/E in Brazil is similar at about 9x. 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.

Recent times haven't been advantageous for Livetech da Bahia Indústria e Comércio as its earnings have been rising slower than most other companies. One possibility is that the P/E is moderate because investors think this lacklustre earnings performance will turn around. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

Check out our latest analysis for Livetech da Bahia Indústria e Comércio

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Is There Some Growth For Livetech da Bahia Indústria e Comércio?

The only time you'd be comfortable seeing a P/E like Livetech da Bahia Indústria e Comércio's is when the company's growth is tracking the market closely.

If we review the last year of earnings growth, the company posted a terrific increase of 22%. Pleasingly, EPS has also lifted 90% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Shifting to the future, estimates from the four analysts covering the company suggest earnings should grow by 20% over the next year. Meanwhile, the rest of the market is forecast to only expand by 12%, which is noticeably less attractive.

With this information, we find it interesting that Livetech da Bahia Indústria e Comércio is trading at a fairly similar P/E to the market. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Final Word

Following Livetech da Bahia Indústria e Comércio's share price tumble, its P/E is now hanging on to the median market P/E. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Livetech da Bahia Indústria e Comércio currently trades on a lower than expected P/E since its forecast growth is higher than the wider market. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears some are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Plus, you should also learn about these 2 warning signs we've spotted with Livetech da Bahia Indústria e Comércio (including 1 which makes us a bit uncomfortable).

If you're unsure about the strength of Livetech da Bahia Indústria e Comércio's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.