Grupo Comercial Chedraui, S.A.B. de C.V.'s (BMV:CHDRAUIB) Popularity With Investors Is Clear

With a price-to-earnings (or "P/E") ratio of 16.4x Grupo Comercial Chedraui, S.A.B. de C.V. (BMV:CHDRAUIB) may be sending very bearish signals at the moment, given that almost half of all companies in Mexico have P/E ratios under 10x and even P/E's lower than 6x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Grupo Comercial Chedraui. de could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Grupo Comercial Chedraui. de

Want the full picture on analyst estimates for the company? Then our free report on Grupo Comercial Chedraui. de will help you uncover what's on the horizon.

How Is Grupo Comercial Chedraui. de's Growth Trending?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Grupo Comercial Chedraui. de's to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 12%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 96% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Looking ahead now, EPS is anticipated to climb by 20% per year during the coming three years according to the nine analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 13% per year, which is noticeably less attractive.

With this information, we can see why Grupo Comercial Chedraui. de is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

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.

We've established that Grupo Comercial Chedraui. de maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Grupo Comercial Chedraui. de with six simple checks on some of these key factors.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.