GCC, S.A.B. de C.V.'s (BMV:GCC) Shares Lagging The Market But So Is The Business

With a price-to-earnings (or "P/E") ratio of 9.1x GCC, S.A.B. de C.V. (BMV:GCC) may be sending bullish signals at the moment, given that almost half of all companies in Mexico have P/E ratios greater than 12x and even P/E's higher than 18x are not unusual. However, the P/E might be low 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, GCC. de has been doing relatively well. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. 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 out of favour.

Check out our latest analysis for GCC. de

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

Does Growth Match The Low P/E?

In order to justify its P/E ratio, GCC. de would need to produce sluggish growth that's trailing the market.

If we review the last year of earnings growth, the company posted a terrific increase of 42%. Pleasingly, EPS has also lifted 118% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Turning to the outlook, the next three years should bring diminished returns, with earnings decreasing 2.6% each year as estimated by the nine analysts watching the company. With the market predicted to deliver 13% growth each year, that's a disappointing outcome.

In light of this, it's understandable that GCC. de's P/E would sit below the majority of other companies. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Final Word

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

As we suspected, our examination of GCC. de's analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

We don't want to rain on the parade too much, but we did also find 2 warning signs for GCC. de (1 is concerning!) that you need to be mindful of.

If you're unsure about the strength of GCC. de's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.