The Market Lifts RAPCO Investment PJSC (ADX:RAPCO) Shares 38% But It Can Do More

RAPCO Investment PJSC (ADX:RAPCO) 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 87%.

Even after such a large jump in price, RAPCO Investment PJSC's price-to-earnings (or "P/E") ratio of 7.3x might still 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 21x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

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Recent times have been quite advantageous for RAPCO Investment PJSC as its earnings have been rising very briskly. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

See our latest analysis for RAPCO Investment PJSC

Although there are no analyst estimates available for RAPCO Investment PJSC, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Any Growth For RAPCO Investment PJSC?

RAPCO Investment PJSC's P/E ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the market.

If we review the last year of earnings growth, the company posted a terrific increase of 189%. The latest three year period has also seen an excellent 786% overall rise in EPS, aided by its short-term performance. 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 7.7% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's peculiar that RAPCO Investment PJSC's P/E sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Final Word

Despite RAPCO Investment PJSC's shares building up a head of steam, its P/E still lags most other companies. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of RAPCO Investment PJSC revealed its three-year earnings trends aren't contributing to its P/E anywhere near as much as we would have predicted, given they look better than current market expectations. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.

Before you settle on your opinion, we've discovered 4 warning signs for RAPCO Investment PJSC (1 is concerning!) that you should be aware of.

If these risks are making you reconsider your opinion on RAPCO Investment PJSC, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.