Market Cool On RAPCO Investment PJSC's (ADX:RAPCO) Earnings

RAPCO Investment PJSC's (ADX:RAPCO) price-to-earnings (or "P/E") ratio of 4.4x might make it look like a strong 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 22x are quite common. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

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Recent times have been quite advantageous for RAPCO Investment PJSC as its earnings have been rising very briskly. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View 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.

Does Growth Match The Low P/E?

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

Taking a look back first, we see that the company grew earnings per share by an impressive 88% last year. The strong recent performance means it was also able to grow EPS by 500% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

This is in contrast to the rest of the market, which is expected to grow by 8.1% 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. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

What We Can Learn From RAPCO Investment PJSC's P/E?

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that RAPCO Investment PJSC currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. 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.

And what about other risks? Every company has them, and we've spotted 4 warning signs for RAPCO Investment PJSC (of which 1 doesn't sit too well with us!) you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.