Deyaar Development PJSC's (DFM:DEYAAR) Price Is Right But Growth Is Lacking After Shares Rocket 37%

The Deyaar Development PJSC (DFM:DEYAAR) share price has done very well over the last month, posting an excellent gain of 37%. The last 30 days bring the annual gain to a very sharp 35%.

Although its price has surged higher, Deyaar Development PJSC's price-to-earnings (or "P/E") ratio of 7.5x 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 13x and even P/E's above 22x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

Recent times have been advantageous for Deyaar Development PJSC as its earnings have been rising faster than most other companies. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. 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.

Check out our latest analysis for Deyaar Development PJSC

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Does Growth Match The Low P/E?

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

If we review the last year of earnings growth, the company posted a terrific increase of 91%. However, the latest three year period hasn't been as great in aggregate as it didn't manage to provide any growth at all. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Turning to the outlook, the next year should bring diminished returns, with earnings decreasing 14% as estimated by the sole analyst watching the company. With the market predicted to deliver 4.2% growth , that's a disappointing outcome.

With this information, we are not surprised that Deyaar Development PJSC is trading at a P/E lower than the market. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Bottom Line On Deyaar Development PJSC's P/E

Despite Deyaar Development PJSC's shares building up a head of steam, its P/E still lags most other companies. 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 Deyaar Development PJSC maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Deyaar Development PJSC that you should be aware of.

If these risks are making you reconsider your opinion on Deyaar Development 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.