Grupo Traxión, S.A.B. de C.V.'s (BMV:TRAXIONA) P/E Still Appears To Be Reasonable

Grupo Traxión, S.A.B. de C.V.'s (BMV:TRAXIONA) price-to-earnings (or "P/E") ratio of 21.7x might make it look like a strong 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 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 so lofty.

Recent times have been advantageous for Grupo Traxión. de as its earnings have been rising faster than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Grupo Traxión. de

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

How Is Grupo Traxión. de's Growth Trending?

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

If we review the last year of earnings growth, the company posted a terrific increase of 72%. Still, incredibly EPS has fallen 7.6% in total from three years ago, which is quite disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Shifting to the future, estimates from the seven analysts covering the company suggest earnings should grow by 44% each year over the next three years. With the market only predicted to deliver 15% per annum, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Grupo Traxión. de's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On Grupo Traxión. 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 Grupo Traxión. de maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

You need to take note of risks, for example - Grupo Traxión. de has 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

Of course, you might also be able to find a better stock than Grupo Traxión. de. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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