Potential Upside For Megacable Holdings, S. A. B. de C. V. (BMV:MEGACPO) Not Without Risk

It's not a stretch to say that Megacable Holdings, S. A. B. de C. V.'s (BMV:MEGACPO) price-to-earnings (or "P/E") ratio of 11.8x right now seems quite "middle-of-the-road" compared to the market in Mexico, where the median P/E ratio is around 13x. 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.

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. It might be that many expect the dour earnings performance to strengthen positively, which has kept the P/E from falling. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

View 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.

Is There Some Growth For Megacable Holdings S. A. B. de C. V?

The only time you'd be comfortable seeing a P/E like Megacable Holdings S. A. B. de C. V's is when the company's growth is tracking the market closely.

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 16%. The last three years don't look nice either as the company has shrunk EPS by 35% in aggregate. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Shifting to the future, estimates from the eleven analysts covering the company suggest earnings should grow by 13% each year over the next three years. With the market only predicted to deliver 9.5% per annum, the company is positioned for a stronger earnings result.

In light of this, it's curious that Megacable Holdings S. A. B. de C. V's P/E sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

What We Can Learn From Megacable Holdings S. A. B. de C. V's P/E?

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 Megacable Holdings S. A. B. de C. V currently trades on a lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Megacable Holdings S. A. B. de C. V (of which 1 is a bit concerning!) you should know about.

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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.