Investors Appear Satisfied With Grupo Rotoplas S.A.B. de C.V.'s (BMV:AGUA) Prospects

With a price-to-earnings (or "P/E") ratio of 20.4x Grupo Rotoplas S.A.B. de C.V. (BMV:AGUA) may be sending very bearish signals at the moment, given that almost half of all companies in Mexico have P/E ratios under 11x and even P/E's lower than 7x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

While the market has experienced earnings growth lately, Grupo Rotoplas. de's earnings have gone into reverse gear, which is not great. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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How Is Grupo Rotoplas. de's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as steep as Grupo Rotoplas. de's is when the company's growth is on track to outshine the market decidedly.

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 43%. This has soured the latest three-year period, which nevertheless managed to deliver a decent 12% overall rise in EPS. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 454% during the coming year according to the three analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 18%, which is noticeably less attractive.

In light of this, it's understandable that Grupo Rotoplas. de's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Grupo Rotoplas. de's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

Plus, you should also learn about these 5 warning signs we've spotted with Grupo Rotoplas. de (including 1 which can't be ignored).

If you're unsure about the strength of Grupo Rotoplas. de's 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.