It's Down 27% But Vamos Locação de Caminhões, Máquinas e Equipamentos S.A. (BVMF:VAMO3) Could Be Riskier Than It Looks

Unfortunately for some shareholders, the Vamos Locação de Caminhões, Máquinas e Equipamentos S.A. (BVMF:VAMO3) share price has dived 27% in the last thirty days, prolonging recent pain. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 33% in that time.

Even after such a large drop in price, there still wouldn't be many who think Vamos Locação de Caminhões Máquinas e Equipamentos' price-to-earnings (or "P/E") ratio of 9.7x is worth a mention when the median P/E in Brazil is similar at about 10x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Vamos Locação de Caminhões Máquinas e Equipamentos hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It might be that many expect the dour earnings performance to strengthen positively, which has kept the P/E from falling. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

View our latest analysis for Vamos Locação de Caminhões Máquinas e Equipamentos

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Vamos Locação de Caminhões Máquinas e Equipamentos.

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

The only time you'd be comfortable seeing a P/E like Vamos Locação de Caminhões Máquinas e Equipamentos' is when the company's growth is tracking the market closely.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 14%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 81% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Shifting to the future, estimates from the twelve analysts covering the company suggest earnings should grow by 34% per year over the next three years. With the market only predicted to deliver 17% per annum, the company is positioned for a stronger earnings result.

With this information, we find it interesting that Vamos Locação de Caminhões Máquinas e Equipamentos is trading at a fairly similar P/E to the market. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Final Word

With its share price falling into a hole, the P/E for Vamos Locação de Caminhões Máquinas e Equipamentos looks quite average now. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Vamos Locação de Caminhões Máquinas e Equipamentos currently trades on a 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 pressure on the P/E ratio. It appears some are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

Having said that, be aware Vamos Locação de Caminhões Máquinas e Equipamentos is showing 2 warning signs in our investment analysis, you should know about.

If these risks are making you reconsider your opinion on Vamos Locação de Caminhões Máquinas e Equipamentos, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.