Investors Still Aren't Entirely Convinced By Cinemark Holdings, Inc.'s (NYSE:CNK) Earnings Despite 25% Price Jump

Cinemark Holdings, Inc. (NYSE:CNK) shareholders would be excited to see that the share price has had a great month, posting a 25% gain and recovering from prior weakness. Looking back a bit further, it's encouraging to see the stock is up 77% in the last year.

Although its price has surged higher, Cinemark Holdings' price-to-earnings (or "P/E") ratio of 14.5x might still make it look like a buy right now compared to the market in the United States, where around half of the companies have P/E ratios above 18x and even P/E's above 32x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

We've discovered 1 warning sign about Cinemark Holdings. View them for free.

Cinemark Holdings certainly has been doing a good job lately as it's been growing earnings more 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 Cinemark Holdings

Want the full picture on analyst estimates for the company? Then our free report on Cinemark Holdings will help you uncover what's on the horizon.

How Is Cinemark Holdings' Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like Cinemark Holdings' to be considered reasonable.

If we review the last year of earnings growth, the company posted a worthy increase of 13%. Still, EPS has barely risen at all in aggregate from three years ago, which is not ideal. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Turning to the outlook, the next three years should generate growth of 9.2% per annum as estimated by the nine analysts watching the company. That's shaping up to be similar to the 10% per year growth forecast for the broader market.

In light of this, it's peculiar that Cinemark Holdings' P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

The Key Takeaway

Cinemark Holdings' stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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.

Our examination of Cinemark Holdings' analyst forecasts revealed that its market-matching earnings outlook isn't contributing to its P/E as much as we would have predicted. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

You always need to take note of risks, for example - Cinemark Holdings has 1 warning sign we think you should be aware of.

You might be able to find a better investment than Cinemark Holdings. 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.