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華爾街日報Improved Earnings Required Before Equatorial Maranhão Distribuidora de Energia S.A. (BVMF:EQMA3B) Shares Find Their Feet
Equatorial Maranhão Distribuidora de Energia S.A.'s (BVMF:EQMA3B) price-to-earnings (or "P/E") ratio of 6.6x might make it look like a buy right now compared to the market in Brazil, where around half of the companies have P/E ratios above 10x and even P/E's above 18x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.
As an illustration, earnings have deteriorated at Equatorial Maranhão Distribuidora de Energia over the last year, which is not ideal at all. It might be that many expect the disappointing earnings performance to continue or accelerate, 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.
View our latest analysis for Equatorial Maranhão Distribuidora de Energia
How Is Equatorial Maranhão Distribuidora de Energia's Growth Trending?
The only time you'd be truly comfortable seeing a P/E as low as Equatorial Maranhão Distribuidora de Energia's is when the company's growth is on track to lag the market.
Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 1.7%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 26% overall rise in EPS. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been mostly respectable for the company.
Comparing that to the market, which is predicted to deliver 21% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.
With this information, we can see why Equatorial Maranhão Distribuidora de Energia is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.
The Bottom Line On Equatorial Maranhão Distribuidora de Energia's P/E
It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.
We've established that Equatorial Maranhão Distribuidora de Energia maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.
It is also worth noting that we have found 3 warning signs for Equatorial Maranhão Distribuidora de Energia (1 can't be ignored!) that you need to take into consideration.
Of course, you might also be able to find a better stock than Equatorial Maranhão Distribuidora de Energia. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.
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