Emaar Development PJSC (DFM:EMAARDEV) Might Not Be As Mispriced As It Looks

When close to half the companies in the United Arab Emirates have price-to-earnings ratios (or "P/E's") above 14x, you may consider Emaar Development PJSC (DFM:EMAARDEV) as a highly attractive investment with its 6.4x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

Recent times have been advantageous for Emaar 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 not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for Emaar Development PJSC

Keen to find out how analysts think Emaar Development PJSC's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Emaar Development PJSC's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as depressed as Emaar Development PJSC's is when the company's growth is on track to lag the market decidedly.

Taking a look back first, we see that the company grew earnings per share by an impressive 15% last year. The latest three year period has also seen an excellent 135% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 7.8% per year as estimated by the nine analysts watching the company. With the market predicted to deliver 7.0% growth each year, the company is positioned for a comparable earnings result.

In light of this, it's peculiar that Emaar Development PJSC's P/E sits below the majority of other companies. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

The Final Word

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 Emaar Development PJSC currently trades on a lower than expected P/E since its forecast growth is in line with the wider market. When we see an average earnings outlook with market-like growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

You should always think about risks. Case in point, we've spotted 1 warning sign for Emaar Development PJSC you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.