Prosegur Cash, S.A.'s (BME:CASH) Shares Not Telling The Full Story

Prosegur Cash, S.A.'s (BME:CASH) price-to-earnings (or "P/E") ratio of 12.3x might make it look like a buy right now compared to the market in Spain, where around half of the companies have P/E ratios above 20x and even P/E's above 31x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

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Prosegur Cash 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 degrade substantially, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

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Does Growth Match The Low P/E?

There's an inherent assumption that a company should underperform the market for P/E ratios like Prosegur Cash's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 42% last year. Pleasingly, EPS has also lifted 176% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 9.8% per year as estimated by the five analysts watching the company. With the market predicted to deliver 12% growth each year, the company is positioned for a comparable earnings result.

In light of this, it's peculiar that Prosegur Cash's P/E sits below the majority of other companies. It may be that most investors are not convinced the company can achieve future growth expectations.

What We Can Learn From Prosegur Cash's P/E?

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.

Our examination of Prosegur Cash's analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. When we see an average earnings outlook with market-like growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

You always need to take note of risks, for example - Prosegur Cash has 2 warning signs we think you should be aware of.

If these risks are making you reconsider your opinion on Prosegur Cash, 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.