Subdued Growth No Barrier To Grupo Bimbo, S.A.B. de C.V.'s (BMV:BIMBOA) Price

With a median price-to-earnings (or "P/E") ratio of close to 13x in Mexico, you could be forgiven for feeling indifferent about Grupo Bimbo, S.A.B. de C.V.'s (BMV:BIMBOA) P/E ratio of 14x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

With earnings growth that's superior to most other companies of late, Grupo Bimbo. de has been doing relatively well. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

Check out our latest analysis for Grupo Bimbo. de

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

How Is Grupo Bimbo. de's Growth Trending?

The only time you'd be comfortable seeing a P/E like Grupo Bimbo. de's is when the company's growth is tracking the market closely.

If we review the last year of earnings growth, the company posted a terrific increase of 38%. The strong recent performance means it was also able to grow EPS by 252% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to slump, contracting by 1.5% per annum during the coming three years according to the nine analysts following the company. Meanwhile, the broader market is forecast to expand by 9.5% per year, which paints a poor picture.

With this information, we find it concerning that Grupo Bimbo. de is trading at a fairly similar P/E to the market. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock right now. There's a good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the negative growth outlook.

The Key Takeaway

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Grupo Bimbo. de currently trades on a higher than expected P/E for a company whose earnings are forecast to decline. When we see a poor outlook with earnings heading backwards, we suspect share price is at risk of declining, sending the moderate P/E lower. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Grupo Bimbo. de that you should be aware of.

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.

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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.