Investors Appear Satisfied With Cencosud Shopping S.A.'s (SNSE:CENCOSHOPP) Prospects

With a price-to-earnings (or "P/E") ratio of 14.7x Cencosud Shopping S.A. (SNSE:CENCOSHOPP) may be sending very bearish signals at the moment, given that almost half of all companies in Chile have P/E ratios under 7x and even P/E's lower than 4x 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.

While the market has experienced earnings growth lately, Cencosud Shopping's earnings have gone into reverse gear, which is not great. 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 Cencosud Shopping

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

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

There's an inherent assumption that a company should far outperform the market for P/E ratios like Cencosud Shopping's to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 59%. This means it has also seen a slide in earnings over the longer-term as EPS is down 93% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Turning to the outlook, the next three years should generate growth of 25% per year as estimated by the five analysts watching the company. That's shaping up to be materially higher than the 7.5% per annum growth forecast for the broader market.

In light of this, it's understandable that Cencosud Shopping's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Cencosud Shopping's P/E

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Cencosud Shopping 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.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Cencosud Shopping you should know about.

Of course, you might also be able to find a better stock than Cencosud Shopping. So you may wish to see this free collection of other companies that sit on P/E's below 20x 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.