Market Might Still Lack Some Conviction On National Cement Company (Public Shareholding Co.) (DFM:NCC) Even After 27% Share Price Boost

National Cement Company (Public Shareholding Co.) (DFM:NCC) shares have had a really impressive month, gaining 27% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 26%.

Even after such a large jump in price, given about half the companies in the United Arab Emirates have price-to-earnings ratios (or "P/E's") above 14x, you may still consider National Cement Company (Public Shareholding) as an attractive investment with its 7.4x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Recent times have been quite advantageous for National Cement Company (Public Shareholding) 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.

View our latest analysis for National Cement Company (Public Shareholding)

Although there are no analyst estimates available for National Cement Company (Public Shareholding), take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is National Cement Company (Public Shareholding)'s Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as National Cement Company (Public Shareholding)'s is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered an exceptional 256% gain to the company's bottom line. Pleasingly, EPS has also lifted 220% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Comparing that to the market, which is only predicted to deliver 2.4% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

In light of this, it's peculiar that National Cement Company (Public Shareholding)'s P/E sits below the majority of other companies. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Bottom Line On National Cement Company (Public Shareholding)'s P/E

Despite National Cement Company (Public Shareholding)'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 National Cement Company (Public Shareholding) 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.

We don't want to rain on the parade too much, but we did also find 2 warning signs for National Cement Company (Public Shareholding) (1 is a bit concerning!) that you need to be mindful of.

Of course, you might also be able to find a better stock than National Cement Company (Public Shareholding). So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.