Stock Analysis

EcoRodovias Infraestrutura e Logística S.A.'s (BVMF:ECOR3) P/E Is Still On The Mark Following 27% Share Price Bounce

Source: Shutterstock

EcoRodovias Infraestrutura e Logística S.A. (BVMF:ECOR3) shareholders would be excited to see that the share price has had a great month, posting a 27% gain and recovering from prior weakness. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 31% over that time.

Following the firm bounce in price, EcoRodovias Infraestrutura e Logística's price-to-earnings (or "P/E") ratio of 14.2x 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 9x and even P/E's below 5x 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.

EcoRodovias Infraestrutura e Logística could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for EcoRodovias Infraestrutura e Logística

BOVESPA:ECOR3 Price Based on Past Earnings March 19th 2023
Want the full picture on analyst estimates for the company? Then our free report on EcoRodovias Infraestrutura e Logística will help you uncover what's on the horizon.

What Are Growth Metrics Telling Us About The High P/E?

There's an inherent assumption that a company should far outperform the market for P/E ratios like EcoRodovias Infraestrutura e Logística's to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 38%. This has erased any of its gains during the last three years, with practically no change in EPS being achieved in total. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Turning to the outlook, the next year should generate growth of 55% as estimated by the eight analysts watching the company. With the market only predicted to deliver 20%, the company is positioned for a stronger earnings result.

In light of this, it's understandable that EcoRodovias Infraestrutura e Logística's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On EcoRodovias Infraestrutura e Logística's P/E

The strong share price surge has got EcoRodovias Infraestrutura e Logística's P/E rushing to great heights as well. 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 EcoRodovias Infraestrutura e Logística maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

And what about other risks? Every company has them, and we've spotted 2 warning signs for EcoRodovias Infraestrutura e Logística (of which 1 is concerning!) you should know about.

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.

Valuation is complex, but we're helping make it simple.

Find out whether EcoRodovias Infraestrutura e Logística is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

View the Free Analysis