Sentiment Still Eluding TIM S.A. (BVMF:TIMS3)

With a price-to-earnings (or "P/E") ratio of 11.7x TIM S.A. (BVMF:TIMS3) may be sending bullish signals at the moment, given that almost half of all companies in Brazil have P/E ratios greater than 15x and even P/E's higher than 31x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

There hasn't been much to differentiate TIM's and the market's earnings growth lately. It might be that many expect the mediocre earnings performance to degrade, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could pick up some stock while it's out of favour.

Check out our latest analysis for TIM

Want the full picture on analyst estimates for the company? Then our free report on TIM will help you uncover what's on the horizon.

How Is TIM's Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like TIM's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 40% last year. Pleasingly, EPS has also lifted 61% 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.

Looking ahead now, EPS is anticipated to climb by 9.0% each year during the coming three years according to the analysts following the company. That's shaping up to be similar to the 10% each year growth forecast for the broader market.

With this information, we find it odd that TIM is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

The Final Word

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.

We've established that TIM currently trades on a lower than expected P/E since its forecast growth is in line with the wider market. When we see an average earnings outlook with market-like growth, we assume potential risks are what might be placing pressure on the P/E ratio. It appears some are indeed anticipating earnings instability, because these conditions should normally provide more support to the share price.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for TIM with six simple checks will allow you to discover any risks that could be an issue.

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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