Dubai Refreshment (P.J.S.C.)'s (DFM:DRC) 36% Jump Shows Its Popularity With Investors

Dubai Refreshment (P.J.S.C.) (DFM:DRC) shares have had a really impressive month, gaining 36% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 30%.

Since its price has surged higher, Dubai Refreshment (P.J.S.C.) may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 17.5x, since almost half of all companies in the United Arab Emirates have P/E ratios under 13x and even P/E's lower than 8x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

For example, consider that Dubai Refreshment (P.J.S.C.)'s financial performance has been poor lately as its earnings have been in decline. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Dubai Refreshment (P.J.S.C.)

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Dubai Refreshment (P.J.S.C.) will help you shine a light on its historical performance.

How Is Dubai Refreshment (P.J.S.C.)'s Growth Trending?

In order to justify its P/E ratio, Dubai Refreshment (P.J.S.C.) would need to produce impressive growth in excess of the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 64%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 51% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

This is in contrast to the rest of the market, which is expected to grow by 6.1% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's understandable that Dubai Refreshment (P.J.S.C.)'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 Dubai Refreshment (P.J.S.C.)'s P/E?

Dubai Refreshment (P.J.S.C.) shares have received a push in the right direction, but its P/E is elevated too. 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.

As we suspected, our examination of Dubai Refreshment (P.J.S.C.) revealed its three-year earnings trends are contributing to its high P/E, given they look better than current market expectations. Right now shareholders are comfortable with the P/E as they are quite confident earnings aren't under threat. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

Before you settle on your opinion, we've discovered 3 warning signs for Dubai Refreshment (P.J.S.C.) (1 shouldn't be ignored!) that 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.