Alpha Dhabi Holding PJSC's (ADX:ALPHADHABI) Popularity With Investors Under Threat As Stock Sinks 25%

To the annoyance of some shareholders, Alpha Dhabi Holding PJSC (ADX:ALPHADHABI) shares are down a considerable 25% in the last month, which continues a horrid run for the company. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 44% in that time.

Even after such a large drop in price, it's still not a stretch to say that Alpha Dhabi Holding PJSC's price-to-earnings (or "P/E") ratio of 14.3x 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 13x. However, investors might be overlooking a clear opportunity or potential setback if there is no rational basis for the P/E.

For instance, Alpha Dhabi Holding PJSC's receding earnings in recent times would have to be some food for thought. One possibility is that the P/E is moderate because investors think the company might still do enough to be in line with the broader market in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.

Check out our latest analysis for Alpha Dhabi Holding PJSC

Although there are no analyst estimates available for Alpha Dhabi Holding PJSC, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Alpha Dhabi Holding PJSC's Growth Trending?

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 38%. As a result, earnings from three years ago have also fallen 26% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 0.3% shows it's an unpleasant look.

With this information, we find it concerning that Alpha Dhabi Holding PJSC is trading at a fairly similar P/E to the market. Apparently many investors in the company are way less bearish than recent times would indicate and aren't willing to let go of their stock right now. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the recent negative growth rates.

The Bottom Line On Alpha Dhabi Holding PJSC's P/E

With its share price falling into a hole, the P/E for Alpha Dhabi Holding PJSC looks quite average now. 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.

Our examination of Alpha Dhabi Holding PJSC revealed its shrinking earnings over the medium-term aren't impacting its P/E as much as we would have predicted, given the market is set to grow. When we see earnings heading backwards and underperforming the market forecasts, we suspect the share price is at risk of declining, sending the moderate P/E lower. If recent medium-term earnings trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Before you settle on your opinion, we've discovered 2 warning signs for Alpha Dhabi Holding PJSC that you should be aware of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. 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.