The Price Is Right For Eletrobras Participações S.A. - Eletropar (BVMF:LIPR3)

Eletrobras Participações S.A. - Eletropar's (BVMF:LIPR3) price-to-earnings (or "P/E") ratio of 34.4x 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 10x and even P/E's below 6x 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.

For instance, Eletrobras Participações - Eletropar's receding earnings in recent times would have to be some food for thought. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/E from collapsing. If not, then existing shareholders may be quite nervous about the viability of the share price.

See our latest analysis for Eletrobras Participações - Eletropar

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Eletrobras Participações - Eletropar will help you shine a light on its historical performance.

What Are Growth Metrics Telling Us About The High P/E?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Eletrobras Participações - Eletropar's to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 14%. Still, the latest three year period has seen an excellent 67% overall rise in EPS, in spite of its unsatisfying short-term performance. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 10% shows it's noticeably more attractive on an annualised basis.

With this information, we can see why Eletrobras Participações - Eletropar is trading at such a high P/E compared to the market. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse.

The Bottom Line On Eletrobras Participações - Eletropar's P/E

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 Eletrobras Participações - Eletropar maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, as expected. Right now shareholders are comfortable with the P/E as they are quite confident earnings aren't under threat. If recent medium-term earnings trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 3 warning signs for Eletrobras Participações - Eletropar (1 doesn't sit too well with us!) that you should be aware of.

Of course, you might also be able to find a better stock than Eletrobras Participações - Eletropar. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.