NMDC Group PJSC (ADX:NMDC) Could Be Riskier Than It Looks

NMDC Group PJSC's (ADX:NMDC) price-to-earnings (or "P/E") ratio of 7.8x might make it look like a buy right now compared to the market in the United Arab Emirates, where around half of the companies have P/E ratios above 14x and even P/E's above 22x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's superior to most other companies of late, NMDC Group PJSC has been doing relatively well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

See our latest analysis for NMDC Group PJSC

Want the full picture on analyst estimates for the company? Then our free report on NMDC Group PJSC will help you uncover what's on the horizon.

Does Growth Match The Low P/E?

The only time you'd be truly comfortable seeing a P/E as low as NMDC Group PJSC's is when the company's growth is on track to lag the market.

If we review the last year of earnings growth, the company posted a terrific increase of 54%. Pleasingly, EPS has also lifted 290% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 17% each year as estimated by the only analyst watching the company. Meanwhile, the rest of the market is forecast to only expand by 5.9% per annum, which is noticeably less attractive.

With this information, we find it odd that NMDC Group PJSC 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.

What We Can Learn From NMDC Group PJSC's 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.

Our examination of NMDC Group PJSC'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. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

Having said that, be aware NMDC Group PJSC is showing 2 warning signs in our investment analysis, and 1 of those is a bit concerning.

You might be able to find a better investment than NMDC Group PJSC. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (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.