After Leaping 26% Vamos Locação de Caminhões, Máquinas e Equipamentos S.A. (BVMF:VAMO3) Shares Are Not Flying Under The Radar

Vamos Locação de Caminhões, Máquinas e Equipamentos S.A. (BVMF:VAMO3) shares have continued their recent momentum with a 26% gain in the last month alone. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

After such a large jump in price, Vamos Locação de Caminhões Máquinas e Equipamentos' price-to-earnings (or "P/E") ratio of 39.3x 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 16x and even P/E's below 9x 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.

With earnings growth that's superior to most other companies of late, Vamos Locação de Caminhões Máquinas e Equipamentos has been doing relatively well. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for Vamos Locação de Caminhões Máquinas e Equipamentos

Keen to find out how analysts think Vamos Locação de Caminhões Máquinas e Equipamentos' future stacks up against the industry? In that case, our free report is a great place to start.

How Is Vamos Locação de Caminhões Máquinas e Equipamentos' Growth Trending?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Vamos Locação de Caminhões Máquinas e Equipamentos' to be considered reasonable.

Retrospectively, the last year delivered an exceptional 47% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 51% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Shifting to the future, estimates from the five analysts covering the company suggest earnings should grow by 23% per year over the next three years. With the market only predicted to deliver 18% per year, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Vamos Locação de Caminhões Máquinas e Equipamentos' P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

Shares in Vamos Locação de Caminhões Máquinas e Equipamentos have built up some good momentum lately, which has really inflated its P/E. 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 Vamos Locação de Caminhões Máquinas e Equipamentos 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.

Before you take the next step, you should know about the 3 warning signs for Vamos Locação de Caminhões Máquinas e Equipamentos (2 are a bit concerning!) that we have uncovered.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a P/E ratio below 20x).

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This article by Simply Wall St is general in nature. 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.
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