Emirates Driving Company P.J.S.C. (ADX:DRIVE) Soars 61% But It's A Story Of Risk Vs Reward

The Emirates Driving Company P.J.S.C. (ADX:DRIVE) share price has done very well over the last month, posting an excellent gain of 61%. The last 30 days bring the annual gain to a very sharp 64%.

Even after such a large jump in price, there still wouldn't be many who think Emirates Driving Company P.J.S.C's price-to-earnings (or "P/E") ratio of 14.5x is worth a mention when the median P/E in the United Arab Emirates is similar at about 15x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Emirates Driving Company P.J.S.C 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 wane, which has kept the P/E from rising. If that doesn't eventuate, then existing shareholders probably aren't too pessimistic about the future direction of the share price.

Check out our latest analysis for Emirates Driving Company P.J.S.C

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

How Is Emirates Driving Company P.J.S.C's Growth Trending?

There's an inherent assumption that a company should be matching the market for P/E ratios like Emirates Driving Company P.J.S.C's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 16% last year. The strong recent performance means it was also able to grow EPS by 108% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 2.2% shows it's noticeably more attractive on an annualised basis.

With this information, we find it interesting that Emirates Driving Company P.J.S.C is trading at a fairly similar P/E to the market. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

What We Can Learn From Emirates Driving Company P.J.S.C's P/E?

Its shares have lifted substantially and now Emirates Driving Company P.J.S.C's P/E is also back up to the market median. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Emirates Driving Company P.J.S.C currently trades on a lower than expected P/E since its recent three-year growth is higher than the wider market forecast. There could be some unobserved threats to earnings preventing the P/E ratio from matching this positive performance. It appears some are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Plus, you should also learn about these 2 warning signs we've spotted with Emirates Driving Company P.J.S.C.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.