National Marine Dredging Company's (ADX:NMDC) P/E Is Still On The Mark Following 25% Share Price Bounce

Despite an already strong run, National Marine Dredging Company (ADX:NMDC) shares have been powering on, with a gain of 25% in the last thirty days. The last month tops off a massive increase of 188% in the last year.

After such a large jump in price, National Marine Dredging's price-to-earnings (or "P/E") ratio of 23.7x might make it look like a strong sell right now compared to the market in the United Arab Emirates, where around half of the companies have P/E ratios below 13x and even P/E's below 8x are quite common. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

National Marine Dredging has been doing a good job lately as it's been growing earnings at a solid pace. It might be that many expect the respectable earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for National Marine Dredging

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on National Marine Dredging will help you shine a light on its historical performance.

Is There Enough Growth For National Marine Dredging?

The only time you'd be truly comfortable seeing a P/E as steep as National Marine Dredging's is when the company's growth is on track to outshine the market decidedly.

Taking a look back first, we see that the company grew earnings per share by an impressive 25% last year. The strong recent performance means it was also able to grow EPS by 118% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

This is in contrast to the rest of the market, which is expected to grow by 9.3% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that National Marine Dredging's P/E sits above the majority of other companies. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse.

What We Can Learn From National Marine Dredging's P/E?

Shares in National Marine Dredging have built up some good momentum lately, which has really inflated its P/E. 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.

We've established that National Marine Dredging maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, as expected. Right now shareholders are comfortable with the P/E as they are quite confident earnings aren't under threat. If recent medium-term earnings trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

Before you take the next step, you should know about the 2 warning signs for National Marine Dredging that we have uncovered.

Of course, you might also be able to find a better stock than National Marine Dredging. So you may wish to see this free collection of other companies that sit on P/E's below 20x and have grown earnings strongly.

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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.