What You Can Learn From Empresas CMPC S.A.'s (SNSE:CMPC) P/E

With a price-to-earnings (or "P/E") ratio of 13.9x Empresas CMPC S.A. (SNSE:CMPC) may be sending bearish signals at the moment, given that almost half of all companies in Chile have P/E ratios under 10x and even P/E's lower than 7x are not unusual. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

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Empresas CMPC could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Empresas CMPC

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Empresas CMPC.

Is There Enough Growth For Empresas CMPC?

In order to justify its P/E ratio, Empresas CMPC would need to produce impressive growth in excess of the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 36%. As a result, earnings from three years ago have also fallen 59% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Shifting to the future, estimates from the ten analysts covering the company suggest earnings should grow by 13% per annum over the next three years. With the market only predicted to deliver 7.6% each year, the company is positioned for a stronger earnings result.

With this information, we can see why Empresas CMPC 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

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 Empresas CMPC maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

Don't forget that there may be other risks. For instance, we've identified 5 warning signs for Empresas CMPC (1 is a bit unpleasant) you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.