Some Shareholders Feeling Restless Over Grupo Carso, S.A.B. de C.V.'s (BMV:GCARSOA1) P/E Ratio

When close to half the companies in Mexico have price-to-earnings ratios (or "P/E's") below 11x, you may consider Grupo Carso, S.A.B. de C.V. (BMV:GCARSOA1) as a stock to avoid entirely with its 18.9x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Grupo Carso. de could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. 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.

See our latest analysis for Grupo Carso. de

Keen to find out how analysts think Grupo Carso. de's future stacks up against the industry? In that case, our free report is a great place to start.

Does Growth Match The High P/E?

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

Retrospectively, the last year delivered a frustrating 31% decrease to the company's bottom line. However, a few very strong years before that means that it was still able to grow EPS by an impressive 69% in total over the last three years. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Turning to the outlook, the next year should generate growth of 8.2% as estimated by the three analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 10%, which is not materially different.

In light of this, it's curious that Grupo Carso. de's P/E sits above the majority of other companies. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. Although, additional gains will be difficult to achieve as this level of earnings growth is likely to weigh down the share price eventually.

What We Can Learn From Grupo Carso. de's P/E?

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.

Our examination of Grupo Carso. de's analyst forecasts revealed that its market-matching earnings outlook isn't impacting its high P/E as much as we would have predicted. When we see an average earnings outlook with market-like growth, we suspect the share price is at risk of declining, sending the high P/E lower. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Grupo Carso. de, and understanding should be part of your investment process.

If these risks are making you reconsider your opinion on Grupo Carso. de, 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.