Some confidence is lacking in the price-earnings ratio of Wal-Mart de México, SAB de CV (BMV:WALMEX)

Wal-Mart de México, SAB de CVs (BMV:WALMEX) a price-to-earnings ratio (or “P/E”) of 22.5x could make it look like a strong sell right now compared to the market in Mexico, where about half of companies have price-to-earnings ratios below 13x and even price-to-earnings ratios below 8x are quite common. Nevertheless, we need to dig a little deeper to determine whether there is a rational basis for the very high price-to-earnings ratio.

Wal-Mart de México. The could do better, as profits have grown less recently than most other companies. One possibility is that the price-to-earnings ratio is high because investors believe it will significantly improve its lackluster earnings performance. You’d really hope so, otherwise you’d be paying a pretty high price for no particular reason.

Check out our latest analysis for Wal-Mart de México. the

BMV:WALMEX * Price-to-earnings ratio versus sector March 8, 2024

Want to get the full picture of analyst estimates for the company? Then our free report on Wal-Mart de México. de helps you discover what lies on the horizon.

How’s Wal-Mart de México doing. de’s growth trending?

To justify its price-to-earnings ratio, Wal-Mart de México. The should achieve excellent growth that far exceeds the market.

Retrospectively, the past year delivered a decent gain of 5.5% for the company’s results. Pleasingly, earnings per share are also up 54% overall compared to three years ago, partly due to growth over the past twelve months. So we can start by confirming that the company has done a great job of growing earnings over that time.

Looking ahead now, earnings per share are expected to grow 9.6% each year over the next three years, according to the 12 analysts covering the company. With the market expected to grow 9.7% annually, the company is positioned for a similar earnings performance.

In light of this, it is curious that Wal-Mart de México. de’s price/earnings ratio is above that of most other companies. Apparently, many investors in the company are more optimistic than analysts indicate and are unwilling to let go of their shares at this time. Although it will be difficult to achieve additional profits as this level of earnings growth will likely ultimately weigh on the share price.

The last word

It’s not wise to use the price-to-earnings ratio alone to determine whether you should sell your shares, but it can provide a practical guide to the company’s future prospects.

We founded that Wal-Mart de México. it is currently trading at a higher than expected price/earnings as the forecast growth is only in line with the broader market. If we see average earnings prospects with market-like growth, we suspect the stock price is at risk of falling, driving down the high price-to-earnings ratio. This puts shareholders’ investments at risk and potential investors run the risk of paying an unnecessary premium.

That said, be warned Wal-Mart de México. the shows 1 warning sign you should be aware of this in our investment analysis.

If you unsure of the strength of Wal-Mart de México. the businessWhy not check out our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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Invent or Wal-Mart de México. the may be over or undervalued if you look at our comprehensive analysis, including fair value estimates, risks and cautions, dividends, insider transactions and financial health.

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This article from Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts using only an unbiased methodology and our articles are not intended as financial advice. It is not a recommendation to buy or sell any stock and does not take into account your objectives or financial situation. We aim to provide you with targeted, long-term analysis based on fundamental data. Please note that our analysis may not take into account the latest price-sensitive company announcements or quality material. Simply Wall St has no positions in the stocks mentioned.

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