Emirates Integrated Telecommunications Company PJSC's (DFM:DU) Earnings Haven't Escaped The Attention Of Investors

When close to half the companies in the United Arab Emirates have price-to-earnings ratios (or "P/E's") below 10x, you may consider Emirates Integrated Telecommunications Company PJSC (DFM:DU) as a stock to potentially avoid with its 14.3x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

Emirates Integrated Telecommunications Company PJSC has been doing a reasonable job lately as its earnings haven't declined as much as most other companies. It seems that many are expecting the comparatively superior earnings performance to persist, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price, especially if earnings continue to dissolve.

See our latest analysis for Emirates Integrated Telecommunications Company PJSC

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What Are Growth Metrics Telling Us About The High P/E?

The only time you'd be truly comfortable seeing a P/E as high as Emirates Integrated Telecommunications Company PJSC's is when the company's growth is on track to outshine the market.

Retrospectively, the last year delivered a frustrating 3.2% decrease to the company's bottom line. Unfortunately, that's brought it right back to where it started three years ago with EPS growth being virtually non-existent overall during that time. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Turning to the outlook, the next three years should demonstrate the company's robustness, generating growth of 3.8% per year as estimated by the three analysts watching the company. With the rest of the market predicted to shrink by 0.6% per year, that would be a fantastic result.

In light of this, it's understandable that Emirates Integrated Telecommunications Company PJSC's P/E sits above the majority of other companies. At this time, shareholders aren't keen to offload something that is potentially eyeing a much more prosperous future.

What We Can Learn From Emirates Integrated Telecommunications Company PJSC's 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 Emirates Integrated Telecommunications Company PJSC's analyst forecasts revealed that its superior earnings outlook against a shaky market is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Our only concern is whether its earnings trajectory can keep outperforming under these tough market conditions. Otherwise, it's hard to see the share price falling strongly in the near future under the current growth expectations.

Plus, you should also learn about this 1 warning sign we've spotted with Emirates Integrated Telecommunications Company PJSC.

If these risks are making you reconsider your opinion on Emirates Integrated Telecommunications Company PJSC, explore our interactive list of high quality stocks to get an idea of what else is out there.

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This article by Simply Wall St is general in nature. 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.
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