ESG Emirates Stallions Group PJSC (ADX:ESG) Soars 26% But It's A Story Of Risk Vs Reward

ESG Emirates Stallions Group PJSC (ADX:ESG) shares have had a really impressive month, gaining 26% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 54%.

In spite of the firm bounce in price, it's still not a stretch to say that ESG Emirates Stallions Group PJSC's price-to-earnings (or "P/E") ratio of 11.6x 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. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

As an illustration, earnings have deteriorated at ESG Emirates Stallions Group PJSC over the last year, which is not ideal at all. It might be that many expect the company to put the disappointing earnings performance behind them over the coming period, which has kept the P/E from falling. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

Check out our latest analysis for ESG Emirates Stallions Group PJSC

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on ESG Emirates Stallions Group PJSC will help you shine a light on its historical performance.

Is There Some Growth For ESG Emirates Stallions Group PJSC?

In order to justify its P/E ratio, ESG Emirates Stallions Group PJSC would need to produce growth that's similar to the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 70%. Still, the latest three year period has seen an excellent 361% overall rise in EPS, in spite of its unsatisfying short-term performance. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Comparing that to the market, which is only predicted to deliver 4.6% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

With this information, we find it interesting that ESG Emirates Stallions Group PJSC is trading at a fairly similar P/E to the market. It may be that most investors are not convinced the company can maintain its recent growth rates.

The Bottom Line On ESG Emirates Stallions Group PJSC's P/E

ESG Emirates Stallions Group PJSC appears to be back in favour with a solid price jump getting its P/E back in line with most other companies. 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 ESG Emirates Stallions Group PJSC revealed its three-year earnings trends aren't contributing to its P/E as much as we would have predicted, given they look better than current market expectations. There could be some unobserved threats to earnings preventing the P/E ratio from matching this positive performance. At least the risk of a price drop looks to be subdued if recent medium-term earnings trends continue, but investors seem to think future earnings could see some volatility.

You should always think about risks. Case in point, we've spotted 2 warning signs for ESG Emirates Stallions Group PJSC 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.