Mota-Engil, SGPS, S.A.'s (ELI:EGL) Subdued P/E Might Signal An Opportunity

When close to half the companies in Portugal have price-to-earnings ratios (or "P/E's") above 13x, you may consider Mota-Engil, SGPS, S.A. (ELI:EGL) as an attractive investment with its 9.7x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Mota-Engil SGPS certainly has been doing a good job lately as its earnings growth has been positive while most other companies have been seeing their earnings go backwards. It might be that many expect the strong earnings performance to degrade substantially, possibly more than the market, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for Mota-Engil SGPS

Keen to find out how analysts think Mota-Engil SGPS' future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Growth For Mota-Engil SGPS?

The only time you'd be truly comfortable seeing a P/E as low as Mota-Engil SGPS' is when the company's growth is on track to lag the market.

If we review the last year of earnings growth, the company posted a terrific increase of 116%. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Looking ahead now, EPS is anticipated to climb by 6.1% each year during the coming three years according to the three analysts following the company. That's shaping up to be similar to the 6.3% per year growth forecast for the broader market.

With this information, we find it odd that Mota-Engil SGPS is trading at a P/E lower than the market. It may be that most investors are not convinced the company can achieve future growth expectations.

The Key Takeaway

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.

We've established that Mota-Engil SGPS currently trades on a lower than expected P/E since its forecast growth is in line with the wider market. When we see an average earnings outlook with market-like 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 more support to the share price.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Mota-Engil SGPS (at least 1 which is a bit concerning), and understanding these should be part of your investment process.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.

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