Market Participants Recognise Enel Américas S.A.'s (SNSE:ENELAM) Earnings

It's not a stretch to say that Enel Américas S.A.'s (SNSE:ENELAM) price-to-earnings (or "P/E") ratio of 12.6x right now seems quite "middle-of-the-road" compared to the market in Chile, where the median P/E ratio is around 11x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

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Enel Américas certainly has been doing a good job lately as it's been growing earnings more than most other companies. 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.

View our latest analysis for Enel Américas

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

The only time you'd be comfortable seeing a P/E like Enel Américas' is when the company's growth is tracking the market closely.

Retrospectively, the last year delivered an exceptional 76% gain to the company's bottom line. EPS has also lifted 8.2% in aggregate from three years ago, mostly thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Shifting to the future, estimates from the five analysts covering the company suggest earnings should grow by 9.6% per annum over the next three years. That's shaping up to be similar to the 8.8% per annum growth forecast for the broader market.

With this information, we can see why Enel Américas is trading at a fairly similar P/E to the market. It seems most investors are expecting to see average future growth and are only willing to pay a moderate amount for the stock.

The Bottom Line On Enel Américas' P/E

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

As we suspected, our examination of Enel Américas' analyst forecasts revealed that its market-matching earnings outlook is contributing to its current P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings won't throw up any surprises. Unless these conditions change, they will continue to support the share price at these levels.

It is also worth noting that we have found 2 warning signs for Enel Américas (1 is potentially serious!) that you need to take into consideration.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.