Getting In Cheap On Dana Gas PJSC (ADX:DANA) Might Be Difficult

Dana Gas PJSC's (ADX:DANA) price-to-earnings (or "P/E") ratio of 41.9x might make it look like a strong sell right now compared to the market in the United Arab Emirates, where around half of the companies have P/E ratios below 11x and even P/E's below 7x are quite common. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Dana Gas PJSC has been struggling lately as its earnings have declined faster than most other companies. It might be that many expect the dismal earnings performance to recover substantially, 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 Dana Gas PJSC

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

How Is Dana Gas PJSC's Growth Trending?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Dana Gas PJSC's to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 70%. The last three years don't look nice either as the company has shrunk EPS by 56% in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Turning to the outlook, the next three years should generate growth of 50% each year as estimated by the four analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 19% per year, which is noticeably less attractive.

In light of this, it's understandable that Dana Gas PJSC's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Dana Gas PJSC's P/E

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Dana Gas PJSC maintains its high P/E on the strength of its forecast growth being higher than the wider market, 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. It's hard to see the share price falling strongly in the near future under these circumstances.

Before you take the next step, you should know about the 2 warning signs for Dana Gas PJSC (1 is a bit unpleasant!) that we have uncovered.

You might be able to find a better investment than Dana Gas PJSC. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a P/E below 20x (but have proven they can grow earnings).

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