Optimistic Investors Push Grupo Comercial Chedraui, S.A.B. de C.V. (BMV:CHDRAUIB) Shares Up 27% But Growth Is Lacking

Grupo Comercial Chedraui, S.A.B. de C.V. (BMV:CHDRAUIB) shareholders have had their patience rewarded with a 27% share price jump in the last month. Looking back a bit further, it's encouraging to see the stock is up 39% in the last year.

Following the firm bounce in price, Grupo Comercial Chedraui. de's price-to-earnings (or "P/E") ratio of 15.8x might make it look like a sell right now compared to the market in Mexico, where around half of the companies have P/E ratios below 13x and even P/E's below 8x are quite common. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's superior to most other companies of late, Grupo Comercial Chedraui. de has been doing relatively well. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for Grupo Comercial Chedraui. de

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Grupo Comercial Chedraui. de.

Does Growth Match The High P/E?

Grupo Comercial Chedraui. de's P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 31% last year. The latest three year period has also seen an excellent 203% overall rise in EPS, aided by its short-term performance. 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 8.8% per annum as estimated by the five analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 9.2% per annum, which is not materially different.

In light of this, it's curious that Grupo Comercial Chedraui. de's P/E sits above the majority of other companies. It seems most investors are ignoring the fairly average growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for disappointment if the P/E falls to levels more in line with the growth outlook.

The Key Takeaway

Grupo Comercial Chedraui. de shares have received a push in the right direction, but its P/E is elevated too. 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 Grupo Comercial Chedraui. 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. Right now we are uncomfortable with the relatively high share price as the predicted future earnings aren't likely to support such positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for Grupo Comercial Chedraui. de with six simple checks on some of these key factors.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.