Grupo Gicsa S.A.B. de C.V. (BMV:GICSAB) Stocks Shoot Up 27% But Its P/E Still Looks Reasonable

Grupo Gicsa S.A.B. de C.V. (BMV:GICSAB) shares have had a really impressive month, gaining 27% after a shaky period beforehand. Unfortunately, despite the strong performance over the last month, the full year gain of 2.3% isn't as attractive.

After such a large jump in price, Grupo Gicsa. de may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 26.4x, since almost half of all companies in Mexico have P/E ratios under 14x and even P/E's lower than 8x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Grupo Gicsa. de certainly has been doing a good job lately as it's been growing earnings more than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for Grupo Gicsa. de

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Does Growth Match The High P/E?

In order to justify its P/E ratio, Grupo Gicsa. de would need to produce outstanding growth well in excess of the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 38% last year. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 97% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 110% during the coming year according to the two analysts following the company. That's shaping up to be materially higher than the 15% growth forecast for the broader market.

With this information, we can see why Grupo Gicsa. de is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Grupo Gicsa. de's P/E?

Shares in Grupo Gicsa. de have built up some good momentum lately, which has really inflated its P/E. Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Grupo Gicsa. de'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.

You should always think about risks. Case in point, we've spotted 2 warning signs for Grupo Gicsa. de you should be aware of, and 1 of them makes us a bit uncomfortable.

If these risks are making you reconsider your opinion on Grupo Gicsa. de, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.