Investors Aren't Buying Unifin Financiera, S. A. B. de C. V.'s (BMV:UNIFINA) Earnings

By
Simply Wall St
Published
March 25, 2021
BMV:UNIFIN A
Source: Shutterstock

With a price-to-earnings (or "P/E") ratio of 6.8x Unifin Financiera, S. A. B. de C. V. (BMV:UNIFINA) may be sending very bullish signals at the moment, given that almost half of all companies in Mexico have P/E ratios greater than 17x and even P/E's higher than 25x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

For instance, Unifin Financiera S. A. B. de C. V's receding earnings in recent times would have to be some food for thought. One possibility is that the P/E is low because investors think the company won't do enough to avoid underperforming the broader market in the near future. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

See our latest analysis for Unifin Financiera S. A. B. de C. V

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BMV:UNIFIN A Price Based on Past Earnings March 25th 2021
Although there are no analyst estimates available for Unifin Financiera S. A. B. de C. V, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

What Are Growth Metrics Telling Us About The Low P/E?

The only time you'd be truly comfortable seeing a P/E as depressed as Unifin Financiera S. A. B. de C. V's is when the company's growth is on track to lag 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 37%. Unfortunately, that's brought it right back to where it started three years ago with EPS growth being virtually non-existent overall during that time. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

This is in contrast to the rest of the market, which is expected to grow by 17% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we can see why Unifin Financiera S. A. B. de C. V is trading at a P/E lower than the market. It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.

What We Can Learn From Unifin Financiera S. A. B. de C. V'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.

We've established that Unifin Financiera S. A. B. de C. V maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Unifin Financiera S. A. B. de C. V (1 is significant) you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies that have grown earnings strongly and trade on P/E's below 20x.

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