The Market Lifts Mota-Engil, SGPS, S.A. (ELI:EGL) Shares 35% But It Can Do More

The Mota-Engil, SGPS, S.A. (ELI:EGL) share price has done very well over the last month, posting an excellent gain of 35%. 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.

Even after such a large jump in price, Mota-Engil SGPS may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 9.7x, since almost half of all companies in Portugal have P/E ratios greater than 13x and even P/E's higher than 23x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

We've discovered 4 warning signs about Mota-Engil SGPS. View them for free.

Recent earnings growth for Mota-Engil SGPS has been in line with the market. It might be that many expect the mediocre earnings performance to degrade, which has repressed the P/E. If not, then existing shareholders have reason to be optimistic about the future direction of the share price.

See our latest analysis for Mota-Engil SGPS

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Mota-Engil SGPS.

Does Growth Match The Low P/E?

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.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 8.4% last year. The latest three year period has also seen an excellent 362% overall rise in EPS, aided somewhat by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 7.0% per annum during the coming three years according to the two analysts following the company. That's shaping up to be similar to the 8.4% 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

Despite Mota-Engil SGPS' shares building up a head of steam, its P/E still lags most other companies. 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 Mota-Engil SGPS currently trades on a lower than expected P/E since its forecast growth is in line with the wider market. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

Before you settle on your opinion, we've discovered 4 warning signs for Mota-Engil SGPS (1 is a bit concerning!) that you should be aware of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.