LATAM Airlines Group S.A.'s (SNSE:LTM) Subdued P/E Might Signal An Opportunity

It's not a stretch to say that LATAM Airlines Group S.A.'s (SNSE:LTM) price-to-earnings (or "P/E") ratio of 9.4x right now seems quite "middle-of-the-road" compared to the market in Chile, where the median P/E ratio is around 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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With earnings growth that's superior to most other companies of late, LATAM Airlines Group has been doing relatively well. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

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How Is LATAM Airlines Group's Growth Trending?

There's an inherent assumption that a company should be matching the market for P/E ratios like LATAM Airlines Group's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 68% last year. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Looking ahead now, EPS is anticipated to climb by 14% during the coming year according to the nine analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 7.6%, which is noticeably less attractive.

In light of this, it's curious that LATAM Airlines Group's P/E sits in line with the majority of other companies. It may be that most investors aren't convinced the company can achieve future growth expectations.

The Key Takeaway

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.

We've established that LATAM Airlines Group currently trades on a lower than expected P/E since its forecast growth is higher than the wider market. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

And what about other risks? Every company has them, and we've spotted 3 warning signs for LATAM Airlines Group (of which 1 is potentially serious!) you should know about.

You might be able to find a better investment than LATAM Airlines Group. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.