Investors Continue Waiting On Sidelines For National Marine Dredging Company (ADX:NMDC)

With a price-to-earnings (or "P/E") ratio of 11.3x National Marine Dredging Company (ADX:NMDC) may be sending bullish signals at the moment, given that almost half of all companies in the United Arab Emirates have P/E ratios greater than 16x and even P/E's higher than 27x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

National Marine Dredging certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Check out our latest analysis for National Marine Dredging

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Is There Any Growth For National Marine Dredging?

National Marine Dredging's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

If we review the last year of earnings growth, the company posted a terrific increase of 75%. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

Turning to the outlook, the next year should generate growth of 11% as estimated by the sole analyst watching the company. With the market only predicted to deliver 4.2%, the company is positioned for a stronger earnings result.

With this information, we find it odd that National Marine Dredging is trading at a P/E lower than the market. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Key Takeaway

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 National Marine Dredging's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

It is also worth noting that we have found 1 warning sign for National Marine Dredging that you need to take into consideration.

If you're unsure about the strength of National Marine Dredging's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.