Dubai Refreshment (P.J.S.C.)'s (DFM:DRC) 38% Jump Shows Its Popularity With Investors

Dubai Refreshment (P.J.S.C.) (DFM:DRC) shares have continued their recent momentum with a 38% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 53%.

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 19.4x, 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. If not, then existing shareholders may be quite nervous about the viability of the share price.

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

Although there are no analyst estimates available for Dubai Refreshment (P.J.S.C.), take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Enough Growth For Dubai Refreshment (P.J.S.C.)?

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%. Even so, admirably EPS has lifted 52% in aggregate from three years ago, notwithstanding the last 12 months. 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 2.6% 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.

The Bottom Line On Dubai Refreshment (P.J.S.C.)'s P/E

Dubai Refreshment (P.J.S.C.)'s P/E is getting right up there since its shares have risen strongly. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Dubai Refreshment (P.J.S.C.) maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Dubai Refreshment (P.J.S.C.) that you should be aware of.

If you're unsure about the strength of Dubai Refreshment (P.J.S.C.)'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.