Grupo Comercial Chedraui, S.A.B. de C.V.'s (BMV:CHDRAUIB) Earnings Haven't Escaped The Attention Of Investors

Grupo Comercial Chedraui, S.A.B. de C.V.'s (BMV:CHDRAUIB) price-to-earnings (or "P/E") ratio of 22.3x 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. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

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Grupo Comercial Chedraui. de hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Grupo Comercial Chedraui. de

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Is There Enough Growth For Grupo Comercial Chedraui. de?

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

Retrospectively, the last year delivered a frustrating 21% decrease to the company's bottom line. Even so, admirably EPS has lifted 68% in aggregate from three years ago, notwithstanding the last 12 months. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Shifting to the future, estimates from the eleven analysts covering the company suggest earnings should grow by 21% per annum over the next three years. With the market only predicted to deliver 12% per annum, the company is positioned for a stronger earnings result.

With this information, we can see why Grupo Comercial Chedraui. de is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On Grupo Comercial Chedraui. 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 Comercial Chedraui. de maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

A lot of potential risks can sit within a company's balance sheet. You can assess many of the main risks through our free balance sheet analysis for Grupo Comercial Chedraui. de with six simple checks.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.