GMéxico Transportes, S.A.B. de C.V.'s (BMV:GMXT) Shares May Have Run Too Fast Too Soon

GMéxico Transportes, S.A.B. de C.V.'s (BMV:GMXT) price-to-earnings (or "P/E") ratio of 16x 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 11x and even P/E's below 7x 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 as high as it is.

While the market has experienced earnings growth lately, GMéxico Transportes. de's earnings have gone into reverse gear, which is not great. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. If not, then existing shareholders may be extremely nervous about the viability of the share price.

See our latest analysis for GMéxico Transportes. de

If you'd like to see what analysts are forecasting going forward, you should check out our free report on GMéxico Transportes. de.

Is There Enough Growth For GMéxico Transportes. de?

GMéxico Transportes. de's P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 9.1%. Regardless, EPS has managed to lift by a handy 14% in aggregate from three years ago, thanks to the earlier period of growth. So we can start by confirming that the company has generally done a good job of growing earnings over that time, even though it had some hiccups along the way.

Shifting to the future, estimates from the four analysts covering the company suggest earnings should grow by 14% over the next year. With the market predicted to deliver 18% growth , the company is positioned for a weaker earnings result.

In light of this, it's alarming that GMéxico Transportes. de's P/E sits above the majority of other companies. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. 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 Final Word

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.

Our examination of GMéxico Transportes. de's analyst forecasts revealed that its inferior earnings outlook isn't impacting its high P/E anywhere near as much as we would have predicted. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

You should always think about risks. Case in point, we've spotted 1 warning sign for GMéxico Transportes. de you should be aware of.

You might be able to find a better investment than GMéxico Transportes. de. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.