Improved Earnings Required Before EcoRodovias Infraestrutura e Logística S.A. (BVMF:ECOR3) Stock's 28% Jump Looks Justified

Those holding EcoRodovias Infraestrutura e Logística S.A. (BVMF:ECOR3) shares would be relieved that the share price has rebounded 28% in the last thirty days, but it needs to keep going to repair the recent damage it has caused to investor portfolios. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 41% in the last twelve months.

Even after such a large jump in price, EcoRodovias Infraestrutura e Logística may still be sending very bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 4.1x, since almost half of all companies in Brazil have P/E ratios greater than 9x and even P/E's higher than 14x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

Recent times have been advantageous for EcoRodovias Infraestrutura e Logística as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for EcoRodovias Infraestrutura e Logística

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

Is There Any Growth For EcoRodovias Infraestrutura e Logística?

EcoRodovias Infraestrutura e Logística's P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.

Retrospectively, the last year delivered an exceptional 55% gain to the company's bottom line. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Turning to the outlook, the next three years should bring diminished returns, with earnings decreasing 7.0% each year as estimated by the six analysts watching the company. With the market predicted to deliver 16% growth per year, that's a disappointing outcome.

In light of this, it's understandable that EcoRodovias Infraestrutura e Logística's P/E would sit below the majority of other companies. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

What We Can Learn From EcoRodovias Infraestrutura e Logística's P/E?

Shares in EcoRodovias Infraestrutura e Logística are going to need a lot more upward momentum to get the company's P/E out of its slump. 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 low P/E on the weakness of its forecast for sliding earnings, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

Plus, you should also learn about these 3 warning signs we've spotted with EcoRodovias Infraestrutura e Logística (including 2 which don't sit too well with us).

Of course, you might also be able to find a better stock than EcoRodovias Infraestrutura e Logística. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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.