There's Reason For Concern Over Grupo Aeroportuario del Pacífico, S.A.B. de C.V.'s (BMV:GAPB) Price

When close to half the companies in Mexico have price-to-earnings ratios (or "P/E's") below 12x, you may consider Grupo Aeroportuario del Pacífico, S.A.B. de C.V. (BMV:GAPB) as a stock to potentially avoid with its 15.2x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.

Grupo Aeroportuario del Pacífico. de could be doing better as it's been growing earnings less than most other companies lately. It might be that many expect the uninspiring earnings performance to recover significantly, which has kept the P/E from collapsing. If not, then existing shareholders may be very nervous about the viability of the share price.

Check out our latest analysis for Grupo Aeroportuario del Pacífico. de

Keen to find out how analysts think Grupo Aeroportuario del Pacífico. de's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Growth For Grupo Aeroportuario del Pacífico. de?

The only time you'd be truly comfortable seeing a P/E as high as Grupo Aeroportuario del Pacífico. de's is when the company's growth is on track to outshine the market.

Retrospectively, the last year delivered a decent 4.3% gain to the company's bottom line. This was backed up an excellent period prior to see EPS up by 703% 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 12% per annum as estimated by the analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 15% per annum, which is noticeably more attractive.

With this information, we find it concerning that Grupo Aeroportuario del Pacífico. de is trading at a P/E higher than the market. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

The Key Takeaway

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 Grupo Aeroportuario del Pacífico. de currently trades on a much higher than expected P/E since its forecast growth is lower than the wider market. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings aren't likely to support such positive sentiment for long. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Before you take the next step, you should know about the 2 warning signs for Grupo Aeroportuario del Pacífico. de that we have uncovered.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.

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