When close to half the companies in the United States have price-to-earnings ratios (or "P/E's") above 17x, you may consider PagSeguro Digital Ltd. (NYSE:PAGS) as an attractive investment with its 11.8x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

PagSeguro Digital certainly has been doing a good job lately as it's been growing earnings more 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 PagSeguro Digital

What Are Growth Metrics Telling Us About The Low P/E?

PagSeguro Digital's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

Retrospectively, the last year delivered a decent 14% gain to the company's bottom line. EPS has also lifted 26% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 15% during the coming year according to the eleven analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 10%, which is noticeably less attractive.

In light of this, it's peculiar that PagSeguro Digital's P/E sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

What We Can Learn From PagSeguro Digital's P/E?

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that PagSeguro Digital currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

Many other vital risk factors can be found on the company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for PagSeguro Digital with six simple checks.

Of course, you might also be able to find a better stock than PagSeguro Digital. 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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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.