Market Still Lacking Some Conviction On JSL S.A. (BVMF:JSLG3)

JSL S.A.'s (BVMF:JSLG3) price-to-earnings (or "P/E") ratio of 6.7x might make it look like a buy right now compared to the market in Brazil, where around half of the companies have P/E ratios above 10x and even P/E's above 20x 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 limited.

JSL certainly has been doing a good job lately as it's been growing earnings more 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.

See our latest analysis for JSL

If you'd like to see what analysts are forecasting going forward, you should check out our free report on JSL.

How Is JSL's Growth Trending?

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

Retrospectively, the last year delivered an exceptional 198% gain to the company's bottom line. EPS has also lifted 16% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Shifting to the future, estimates from the five analysts covering the company suggest earnings should grow by 15% each year over the next three years. Meanwhile, the rest of the market is forecast to only expand by 13% each year, which is noticeably less attractive.

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

The Final Word

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 JSL currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Before you settle on your opinion, we've discovered 4 warning signs for JSL (1 is concerning!) that you should be aware of.

You might be able to find a better investment than JSL. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a P/E below 20x (but have proven they can grow earnings).

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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.