SIMPAR S.A.'s (BVMF:SIMH3) Share Price Is Still Matching Investor Opinion Despite 29% Slump

The SIMPAR S.A. (BVMF:SIMH3) share price has fared very poorly over the last month, falling by a substantial 29%. Instead of being rewarded, shareholders who have already held through the last twelve months are now sitting on a 35% share price drop.

Although its price has dipped substantially, SIMPAR may still be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 11.5x, since almost half of all companies in Brazil have P/E ratios under 9x and even P/E's lower than 5x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

SIMPAR hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. 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.

Check out the opportunities and risks within the BR Transportation industry.

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

Is There Enough Growth For SIMPAR?

The only time you'd be truly comfortable seeing a P/E as high as SIMPAR's is when the company's growth is on track to outshine the market.

Retrospectively, the last year delivered a frustrating 54% decrease to the company's bottom line. Even so, admirably EPS has lifted 91% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Turning to the outlook, the next year should generate growth of 113% as estimated by the six analysts watching the company. That's shaping up to be materially higher than the 18% growth forecast for the broader market.

With this information, we can see why SIMPAR is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Key Takeaway

Despite the recent share price weakness, SIMPAR's P/E remains higher than most other companies. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of SIMPAR's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 5 warning signs for SIMPAR you should be aware of, and 2 of them shouldn't be ignored.

Of course, you might also be able to find a better stock than SIMPAR. So you may wish to see this free collection of other companies that sit on P/E's below 20x and have grown earnings strongly.

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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.