Compañía Cervecerías Unidas S.A.'s (SNSE:CCU) P/E Is On The Mark

With a price-to-earnings (or "P/E") ratio of 18.5x Compañía Cervecerías Unidas S.A. (SNSE:CCU) may be sending very bearish signals at the moment, given that almost half of all companies in Chile have P/E ratios under 9x and even P/E's lower than 6x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Compañía Cervecerías Unidas hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be extremely nervous about the viability of the share price.

Check out our latest analysis for Compañía Cervecerías Unidas

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How Is Compañía Cervecerías Unidas' Growth Trending?

The only time you'd be truly comfortable seeing a P/E as steep as Compañía Cervecerías Unidas' is when the company's growth is on track to outshine the market decidedly.

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 8.5%. The last three years don't look nice either as the company has shrunk EPS by 28% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 16% each year as estimated by the seven analysts watching the company. With the market only predicted to deliver 14% per annum, the company is positioned for a stronger earnings result.

With this information, we can see why Compañía Cervecerías Unidas 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 Bottom Line On Compañía Cervecerías Unidas' P/E

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 Compañía Cervecerías Unidas maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Compañía Cervecerías Unidas (of which 1 is concerning!) you should know about.

If you're unsure about the strength of Compañía Cervecerías Unidas' 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.