Market Participants Recognise Empresa Nacional de Telecomunicaciones S.A.'s (SNSE:ENTEL) Earnings Pushing Shares 32% Higher

Despite an already strong run, Empresa Nacional de Telecomunicaciones S.A. (SNSE:ENTEL) shares have been powering on, with a gain of 32% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 46% in the last year.

Since its price has surged higher, Empresa Nacional de Telecomunicaciones may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 15.5x, since almost half of all companies in Chile have P/E ratios under 11x 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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Empresa Nacional de Telecomunicaciones could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. If not, then existing shareholders may be extremely nervous about the viability of the share price.

Check out our latest analysis for Empresa Nacional de Telecomunicaciones

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Empresa Nacional de Telecomunicaciones.

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

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

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 1.8%. As a result, earnings from three years ago have also fallen 77% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 20% per year as estimated by the five analysts watching the company. That's shaping up to be materially higher than the 8.8% per annum growth forecast for the broader market.

In light of this, it's understandable that Empresa Nacional de Telecomunicaciones' P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

Empresa Nacional de Telecomunicaciones shares have received a push in the right direction, but its P/E is elevated too. 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.

As we suspected, our examination of Empresa Nacional de Telecomunicaciones' analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. 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.

You should always think about risks. Case in point, we've spotted 3 warning signs for Empresa Nacional de Telecomunicaciones you should be aware of, and 1 of them is concerning.

If you're unsure about the strength of Empresa Nacional de Telecomunicaciones' 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.