Multilaser Industrial S.A. (BVMF:MLAS3) Stock Rockets 25% As Investors Are Less Pessimistic Than Expected

Multilaser Industrial S.A. (BVMF:MLAS3) shareholders would be excited to see that the share price has had a great month, posting a 25% gain and recovering from prior weakness. While recent buyers may be laughing, long-term holders might not be as pleased since the recent gain only brings the stock back to where it started a year ago.

In spite of the firm bounce in price, it's still not a stretch to say that Multilaser Industrial's price-to-earnings (or "P/E") ratio of 8.8x right now seems quite "middle-of-the-road" compared to the market in Brazil, where the median P/E ratio is around 11x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Recent earnings growth for Multilaser Industrial has been in line with the market. It seems that many are expecting the mediocre earnings performance to persist, which has held the P/E back. If you like the company, you'd be hoping this can at least be maintained so that you could pick up some stock while it's not quite in favour.

See our latest analysis for Multilaser Industrial

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

Is There Some Growth For Multilaser Industrial?

Multilaser Industrial's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

If we review the last year of earnings growth, the company posted a terrific increase of 51%. The latest three year period has also seen an excellent 157% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 8.7% during the coming year according to the four analysts following the company. That's shaping up to be materially lower than the 14% growth forecast for the broader market.

With this information, we find it interesting that Multilaser Industrial is trading at a fairly similar P/E to the market. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of earnings growth is likely to weigh down the shares eventually.

The Bottom Line On Multilaser Industrial's P/E

Its shares have lifted substantially and now Multilaser Industrial's P/E is also back up to the market median. 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.

We've established that Multilaser Industrial currently trades on a higher than expected P/E since its forecast growth is lower than the wider market. 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 Multilaser Industrial that you should be aware of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a P/E below 20x.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.