Compañía de Minas Buenaventura S.A.A.'s (NYSE:BVN) Price Is Right But Growth Is Lacking

Compañía de Minas Buenaventura S.A.A.'s (NYSE:BVN) price-to-earnings (or "P/E") ratio of 8.9x might make it look like a strong buy right now compared to the market in the United States, where around half of the companies have P/E ratios above 19x and even P/E's above 35x are quite common. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Recent times have been advantageous for Compañía de Minas BuenaventuraA as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to degrade substantially, 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.

Check out our latest analysis for Compañía de Minas BuenaventuraA

Keen to find out how analysts think Compañía de Minas BuenaventuraA's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Compañía de Minas BuenaventuraA's Growth Trending?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Compañía de Minas BuenaventuraA's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 335%. The latest three year period has also seen an excellent 759% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to slump, contracting by 11% during the coming year according to the five analysts following the company. Meanwhile, the broader market is forecast to expand by 15%, which paints a poor picture.

In light of this, it's understandable that Compañía de Minas BuenaventuraA's P/E would sit below the majority of other companies. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Key Takeaway

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.

As we suspected, our examination of Compañía de Minas BuenaventuraA's analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Compañía de Minas BuenaventuraA, and understanding should be part of your investment process.

If these risks are making you reconsider your opinion on Compañía de Minas BuenaventuraA, 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.