Cencosud Shopping S.A. (SNSE:CENCOMALLS) Investors Are Less Pessimistic Than Expected

When close to half the companies in Chile have price-to-earnings ratios (or "P/E's") below 9x, you may consider Cencosud Shopping S.A. (SNSE:CENCOMALLS) as a stock to potentially avoid with its 11.2x P/E ratio. However, the P/E might be 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, Cencosud Shopping 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.

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How Is Cencosud Shopping's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as high as Cencosud Shopping's is when the company's growth is on track to outshine the market.

If we review the last year of earnings growth, the company posted a worthy increase of 9.5%. The solid recent performance means it was also able to grow EPS by 10.0% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

Turning to the outlook, the next year should bring diminished returns, with earnings decreasing 1.4% as estimated by the five analysts watching the company. With the market predicted to deliver 9.2% growth , that's a disappointing outcome.

In light of this, it's alarming that Cencosud Shopping's P/E sits above the majority of other companies. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock at any price. There's a very good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the negative growth outlook.

What We Can Learn From Cencosud Shopping's P/E?

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 Cencosud Shopping currently trades on a much higher than expected P/E for a company whose earnings are forecast to decline. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings are highly unlikely to support such positive sentiment for long. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

You need to take note of risks, for example - Cencosud Shopping has 2 warning signs (and 1 which is significant) we think you should know about.

If these risks are making you reconsider your opinion on Cencosud Shopping, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.