There's Reason For Concern Over Aramex PJSC's (DFM:ARMX) Price

There wouldn't be many who think Aramex PJSC's (DFM:ARMX) price-to-earnings (or "P/E") ratio of 10.6x is worth a mention when the median P/E in the United Arab Emirates is similar at about 11x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Aramex PJSC has been doing a reasonable job lately as its earnings haven't declined as much as most other companies. It might be that many expect the comparatively superior earnings performance to vanish, which has kept the P/E from rising. If you still like the company, you'd want its earnings trajectory to turn around before making any decisions. But at the very least, you'd be hoping the company doesn't fall back into the pack if your plan is to pick up some stock while it's not in favour.

View our latest analysis for Aramex PJSC

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Aramex PJSC.

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

There's an inherent assumption that a company should be matching the market for P/E ratios like Aramex PJSC's to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 8.1%. Regardless, EPS has managed to lift by a handy 10.0% in aggregate from three years ago, thanks to the earlier period of growth. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been mostly respectable for the company.

Turning to the outlook, the next three years should bring diminished returns, with earnings decreasing 0.7% per annum as estimated by the five analysts watching the company. That's not great when the rest of the market is expected to grow by 0.4% per annum.

With this information, we find it concerning that Aramex PJSC is trading at a fairly similar P/E to the market. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. Only the boldest would assume these prices are sustainable as these declining earnings are likely to weigh on the share price eventually.

The Bottom Line On Aramex PJSC's P/E

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of Aramex PJSC's analyst forecasts revealed that its outlook for shrinking earnings isn't impacting its P/E as much as we would have predicted. When we see a poor outlook with earnings heading backwards, we suspect share price is at risk of declining, sending the moderate P/E lower. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for Aramex PJSC with six simple checks will allow you to discover any risks that could be an issue.

You might be able to find a better investment than Aramex PJSC. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a P/E below 20x (but have proven they can grow earnings).

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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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