CIE Automotive, S.A.'s (BME:CIE) Business And Shares Still Trailing The Market

CIE Automotive, S.A.'s (BME:CIE) price-to-earnings (or "P/E") ratio of 8.6x might make it look like a strong buy right now compared to the market in Spain, where around half of the companies have P/E ratios above 19x and even P/E's above 31x are quite common. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Recent times haven't been advantageous for CIE Automotive as its earnings have been rising slower than most other companies. The P/E is probably low because investors think this lacklustre earnings performance isn't going to get any better. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

See our latest analysis for CIE Automotive

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Does Growth Match The Low P/E?

The only time you'd be truly comfortable seeing a P/E as depressed as CIE Automotive's is when the company's growth is on track to lag the market decidedly.

Taking a look back first, we see that the company managed to grow earnings per share by a handy 5.8% last year. The solid recent performance means it was also able to grow EPS by 25% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Turning to the outlook, the next three years should generate growth of 9.2% per year as estimated by the seven analysts watching the company. With the market predicted to deliver 12% growth per annum, the company is positioned for a weaker earnings result.

In light of this, it's understandable that CIE Automotive's P/E sits below the majority of other companies. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that CIE Automotive maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

It is also worth noting that we have found 2 warning signs for CIE Automotive that you need to take into consideration.

If these risks are making you reconsider your opinion on CIE Automotive, 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.