There's No Escaping Grupo Gicsa S.A.B. de C.V.'s (BMV:GICSAB) Muted Earnings Despite A 26% Share Price Rise

Grupo Gicsa S.A.B. de C.V. (BMV:GICSAB) shareholders would be excited to see that the share price has had a great month, posting a 26% gain and recovering from prior weakness. The last 30 days bring the annual gain to a very sharp 30%.

In spite of the firm bounce in price, Grupo Gicsa. de's price-to-earnings (or "P/E") ratio of 2.5x might still make it look like a strong buy right now compared to the market in Mexico, where around half of the companies have P/E ratios above 13x and even P/E's above 20x are quite common. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

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Grupo Gicsa. de certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. 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.

View our latest analysis for Grupo Gicsa. de

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Is There Any Growth For Grupo Gicsa. de?

The only time you'd be truly comfortable seeing a P/E as depressed as Grupo Gicsa. de's is when the company's growth is on track to lag the market decidedly.

Retrospectively, the last year delivered an exceptional 70% gain to the company's bottom line. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Comparing that to the market, which is predicted to deliver 13% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

With this information, we can see why Grupo Gicsa. de is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Final Word

Even after such a strong price move, Grupo Gicsa. de's P/E still trails the rest of the market significantly. 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 Grupo Gicsa. de maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.

It is also worth noting that we have found 4 warning signs for Grupo Gicsa. de (3 are concerning!) that you need to take into consideration.

Of course, you might also be able to find a better stock than Grupo Gicsa. de. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.