Corporación América Airports S.A.'s (NYSE:CAAP) price-to-earnings (or "P/E") ratio of 8.8x might make it look like a strong buy right now compared to the market in the United States, where around half of the companies have P/E ratios above 19x and even P/E's above 35x are quite common. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's superior to most other companies of late, Corporación América Airports has been doing relatively well. 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 Corporación América Airports

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

Is There Any Growth For Corporación América Airports?

In order to justify its P/E ratio, Corporación América Airports would need to produce anemic growth that's substantially trailing the market.

Retrospectively, the last year delivered an exceptional 116% gain to the company's bottom line. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Turning to the outlook, the next year should bring diminished returns, with earnings decreasing 18% as estimated by the two analysts watching the company. Meanwhile, the broader market is forecast to expand by 15%, which paints a poor picture.

With this information, we are not surprised that Corporación América Airports is trading at a P/E lower than the market. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Bottom Line On Corporación América Airports' P/E

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.

As we suspected, our examination of Corporación América Airports' analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 2 warning signs for Corporación América Airports you should be aware of.

You might be able to find a better investment than Corporación América Airports. 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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