ESG Emirates Stallions Group PJSC's (ADX:ESG) Share Price Could Signal Some Risk

There wouldn't be many who think ESG Emirates Stallions Group PJSC's (ADX:ESG) price-to-earnings (or "P/E") ratio of 14.2x is worth a mention when the median P/E in the United Arab Emirates is similar at about 13x. 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.

With earnings growth that's exceedingly strong of late, ESG Emirates Stallions Group PJSC has been doing very well. The P/E is probably moderate because investors think this strong earnings growth might not be enough to outperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Check out the opportunities and risks within the AE Industrials industry.

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.

How Is ESG Emirates Stallions Group PJSC's Growth Trending?

ESG Emirates Stallions Group 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.

If we review the last year of earnings growth, the company posted a terrific increase of 173%. Still, incredibly EPS has fallen 58% in total from three years ago, which is quite disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

In contrast to the company, the rest of the market is expected to grow by 2.5% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

With this information, we find it concerning that ESG Emirates Stallions Group 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.

What We Can Learn From ESG Emirates Stallions Group 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 ESG Emirates Stallions Group 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. Right now we are uncomfortable with the P/E as this earnings performance is unlikely to support a more positive sentiment for long. If recent medium-term earnings trends continue, it will place shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

And what about other risks? Every company has them, and we've spotted 2 warning signs for ESG Emirates Stallions Group PJSC (of which 1 doesn't sit too well with us!) you should know about.

You might be able to find a better investment than ESG Emirates Stallions Group 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. 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.