Investors Holding Back On National Central Cooling Company PJSC (DFM:TABREED)

It's not a stretch to say that National Central Cooling Company PJSC's (DFM:TABREED) price-to-earnings (or "P/E") ratio of 11.2x right now seems quite "middle-of-the-road" compared to the market in the United Arab Emirates, where the median P/E ratio is around 11x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

Recent times have been pleasing for National Central Cooling Company PJSC as its earnings have risen in spite of the market's earnings going into reverse. It might be that many expect the strong earnings performance to deteriorate like the rest, which has kept the P/E from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

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Does Growth Match The P/E?

National Central Cooling Company PJSC's P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

Retrospectively, the last year delivered a decent 10% gain to the company's bottom line. EPS has also lifted 25% in aggregate from three years ago, partly thanks to the last 12 months of growth. So we can start by confirming that the company has actually done a good job of growing earnings over that time.

Shifting to the future, estimates from the twin analysts covering the company suggest earnings growth will be highly resilient over the next three years growing by 6.5% each year. Meanwhile, the broader market is forecast to contract by 0.1% per annum, which would indicate the company is doing very well.

With this information, we find it odd that National Central Cooling Company PJSC is trading at a fairly similar P/E to the market. It looks like most investors aren't convinced the company can achieve positive future growth in the face of a shrinking broader market.

The Key Takeaway

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 National Central Cooling Company PJSC currently trades on a lower than expected P/E since its growth forecasts are potentially beating a struggling market. There could be some unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. Perhaps there is some hesitation about the company's ability to keep swimming against the current of the broader market turmoil. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for National Central Cooling Company PJSC (1 is potentially serious) you should be aware of.

Of course, you might also be able to find a better stock than National Central Cooling Company PJSC. So you may wish to see this free collection of other companies that sit on P/E's below 20x and have grown earnings strongly.

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