Emaar Properties PJSC's (DFM:EMAAR) Prospects Need A Boost To Lift Shares

When close to half the companies in the United Arab Emirates have price-to-earnings ratios (or "P/E's") above 16x, you may consider Emaar Properties PJSC (DFM:EMAAR) as a highly attractive investment with its 7.2x P/E ratio. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

Emaar Properties PJSC could be doing better as it's been growing earnings less than most other companies lately. The P/E is probably low because investors think this lacklustre earnings performance isn't going to get any better. If you still like the company, you'd be hoping earnings don't get any worse and that you could pick up some stock while it's out of favour.

Check out our latest analysis for Emaar Properties PJSC

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Does Growth Match The Low P/E?

Emaar Properties PJSC's P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.

If we review the last year of earnings growth, the company posted a terrific increase of 21%. Pleasingly, EPS has also lifted 96% 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.

Turning to the outlook, the next three years should generate growth of 1.1% per annum as estimated by the eleven analysts watching the company. With the market predicted to deliver 4.6% growth each year, the company is positioned for a weaker earnings result.

With this information, we can see why Emaar Properties PJSC is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Key Takeaway

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Emaar Properties PJSC maintains its low P/E on the weakness of its forecast growth being lower than the wider market, 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. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Emaar Properties PJSC with six simple checks on some of these key factors.

Of course, you might also be able to find a better stock than Emaar Properties PJSC. 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.