Market Cool On Equatorial Pará Distribuidora de Energia S.A.'s (BVMF:EQPA3) Earnings

With a price-to-earnings (or "P/E") ratio of 7.7x Equatorial Pará Distribuidora de Energia S.A. (BVMF:EQPA3) may be sending bullish signals at the moment, given that almost half of all companies in Brazil have P/E ratios greater than 12x and even P/E's higher than 20x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Equatorial Pará Distribuidora de Energia certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Check out our latest analysis for Equatorial Pará Distribuidora de Energia

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Equatorial Pará Distribuidora de Energia's earnings, revenue and cash flow.

How Is Equatorial Pará Distribuidora de Energia's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as Equatorial Pará Distribuidora de Energia's is when the company's growth is on track to lag the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 53% last year. The strong recent performance means it was also able to grow EPS by 211% 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.

Comparing that to the market, which is only predicted to deliver 20% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

With this information, we find it odd that Equatorial Pará Distribuidora de Energia is trading at a P/E lower than the market. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Bottom Line On Equatorial Pará Distribuidora de Energia's P/E

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Equatorial Pará Distribuidora de Energia currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. It appears many are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Before you take the next step, you should know about the 6 warning signs for Equatorial Pará Distribuidora de Energia (2 are a bit unpleasant!) that we have uncovered.

If you're unsure about the strength of Equatorial Pará Distribuidora de Energia's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.