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华尔街日报What You Can Learn From Dimed S.A. Distribuidora de Medicamentos' (BVMF:PNVL3) P/E
When close to half the companies in Brazil have price-to-earnings ratios (or "P/E's") below 9x, you may consider Dimed S.A. Distribuidora de Medicamentos (BVMF:PNVL3) as a stock to avoid entirely with its 15x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.
With earnings growth that's superior to most other companies of late, Dimed Distribuidora de Medicamentos has been doing relatively well. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.
Check out our latest analysis for Dimed Distribuidora de Medicamentos
Does Growth Match The High P/E?
There's an inherent assumption that a company should far outperform the market for P/E ratios like Dimed Distribuidora de Medicamentos' to be considered reasonable.
Retrospectively, the last year delivered a decent 9.0% gain to the company's bottom line. This was backed up an excellent period prior to see EPS up by 31% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.
Shifting to the future, estimates from the four analysts covering the company suggest earnings should grow by 68% over the next year. Meanwhile, the rest of the market is forecast to only expand by 20%, which is noticeably less attractive.
With this information, we can see why Dimed Distribuidora de Medicamentos is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.
The Final Word
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 Dimed Distribuidora de Medicamentos' analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.
A lot of potential risks can sit within a company's balance sheet. Take a look at our free balance sheet analysis for Dimed Distribuidora de Medicamentos with six simple checks on some of these key factors.
If you're unsure about the strength of Dimed Distribuidora de Medicamentos' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.
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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.