Market Participants Recognise Megacable Holdings, S. A. B. de C. V.'s (BMV:MEGACPO) Earnings Pushing Shares 25% Higher

The Megacable Holdings, S. A. B. de C. V. (BMV:MEGACPO) share price has done very well over the last month, posting an excellent gain of 25%. While recent buyers may be laughing, long-term holders might not be as pleased since the recent gain only brings the stock back to where it started a year ago.

Since its price has surged higher, Megacable Holdings S. A. B. de C. V's price-to-earnings (or "P/E") ratio of 18.9x might make it look like a strong sell right now compared to the market in Mexico, where around half of the companies have P/E ratios below 11x and even P/E's below 7x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

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Megacable Holdings S. A. B. de C. V could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Megacable Holdings S. A. B. de C. V

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Megacable Holdings S. A. B. de C. V.

How Is Megacable Holdings S. A. B. de C. V's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as steep as Megacable Holdings S. A. B. de C. V's is when the company's growth is on track to outshine 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 22%. This means it has also seen a slide in earnings over the longer-term as EPS is down 34% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 31% per year as estimated by the twelve analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 14% per annum, which is noticeably less attractive.

With this information, we can see why Megacable Holdings S. A. B. de C. V 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 Final Word

Shares in Megacable Holdings S. A. B. de C. V have built up some good momentum lately, which has really inflated its 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.

As we suspected, our examination of Megacable Holdings S. A. B. de C. V's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Megacable Holdings S. A. B. de C. V (1 is concerning) you should be aware of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.