There's Reason For Concern Over Sociedad Punta del Cobre S.A.'s (SNSE:PUCOBRE) Price

There wouldn't be many who think Sociedad Punta del Cobre S.A.'s (SNSE:PUCOBRE) price-to-earnings (or "P/E") ratio of 9x is worth a mention when the median P/E in Chile is similar at about 10x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

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Sociedad Punta del Cobre certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

View our latest analysis for Sociedad Punta del Cobre

Although there are no analyst estimates available for Sociedad Punta del Cobre, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Sociedad Punta del Cobre's Growth Trending?

Sociedad Punta del Cobre's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 205% last year. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 18% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Comparing that to the market, which is predicted to deliver 6.7% growth in the next 12 months, the company's downward momentum based on recent medium-term earnings results is a sobering picture.

In light of this, it's somewhat alarming that Sociedad Punta del Cobre's P/E sits in line with the majority of other companies. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh on the share price eventually.

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.

We've established that Sociedad Punta del Cobre currently trades on a higher than expected P/E since its recent earnings have been in decline over the medium-term. Right now we are uncomfortable with the P/E as this earnings performance is unlikely to support a more positive sentiment for long. Unless the recent medium-term conditions improve, it's challenging to accept these prices as being reasonable.

You should always think about risks. Case in point, we've spotted 3 warning signs for Sociedad Punta del Cobre you should be aware of, and 2 of them shouldn't be ignored.

If you're unsure about the strength of Sociedad Punta del Cobre's 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.