América Móvil, S.A.B. de C.V. (BMV:AMXB) Investors Are Less Pessimistic Than Expected

América Móvil, S.A.B. de C.V.'s (BMV:AMXB) price-to-earnings (or "P/E") ratio of 15x might make it look like a sell right now compared to the market in Mexico, where around half of the companies have P/E ratios below 12x and even P/E's below 8x are quite common. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Recent earnings growth for América Móvil. de has been in line with the market. One possibility is that the P/E is high because investors think this modest earnings performance will accelerate. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for América Móvil. de

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Is There Enough Growth For América Móvil. de?

In order to justify its P/E ratio, América Móvil. de would need to produce impressive growth in excess of the market.

If we review the last year of earnings growth, the company posted a terrific increase of 21%. The strong recent performance means it was also able to grow EPS by 50% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 10% each year as estimated by the analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 10% each year, which is not materially different.

In light of this, it's curious that América Móvil. de's P/E sits above the majority of other companies. It seems most investors are ignoring the fairly average growth expectations and are willing to pay up for exposure to the stock. Although, additional gains will be difficult to achieve as this level of earnings growth is likely to weigh down the share price eventually.

What We Can Learn From América Móvil. de's P/E?

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that América Móvil. de currently trades on a higher than expected P/E since its forecast growth is only in line with the wider market. When we see an average earnings outlook with market-like growth, we suspect the share price is at risk of declining, sending the high P/E lower. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

It is also worth noting that we have found 1 warning sign for América Móvil. de that you need to take into consideration.

If you're unsure about the strength of América Móvil. 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.