El Puerto de Liverpool, S.A.B. de C.V.'s (BMV:LIVEPOLC-1) Low P/E No Reason For Excitement

El Puerto de Liverpool, S.A.B. de C.V.'s (BMV:LIVEPOLC-1) price-to-earnings (or "P/E") ratio of 5.4x might 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 12x and even P/E's above 19x 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 limited.

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Recent times have been advantageous for El Puerto de Liverpool. de as its earnings have been rising faster than most other companies. 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 El Puerto de Liverpool. de

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Does Growth Match The Low P/E?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 19% last year. The latest three year period has also seen an excellent 80% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the analysts covering the company suggest earnings should grow by 3.8% each year over the next three years. With the market predicted to deliver 12% growth per annum, the company is positioned for a weaker earnings result.

With this information, we can see why El Puerto de Liverpool. de is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On El Puerto de Liverpool. de's P/E

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that El Puerto de Liverpool. de maintains its low P/E on the weakness of its forecast growth being lower than the wider market, 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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

Having said that, be aware El Puerto de Liverpool. de is showing 1 warning sign in our investment analysis, you should know about.

If you're unsure about the strength of El Puerto de Liverpool. 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.