Even With A 29% Surge, Cautious Investors Are Not Rewarding Emaar Development PJSC's (DFM:EMAARDEV) Performance Completely

Despite an already strong run, Emaar Development PJSC (DFM:EMAARDEV) shares have been powering on, with a gain of 29% in the last thirty days. The last 30 days bring the annual gain to a very sharp 67%.

In spite of the firm bounce in price, given about half the companies in the United Arab Emirates have price-to-earnings ratios (or "P/E's") above 13x, you may still consider Emaar Development PJSC as a highly attractive investment with its 6.4x 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 Development PJSC certainly has been doing a good job lately as it's been growing earnings more 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.

See our latest analysis for Emaar Development PJSC

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Is There Any Growth For Emaar Development PJSC?

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

Retrospectively, the last year delivered an exceptional 42% gain to the company's bottom line. Pleasingly, EPS has also lifted 165% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Looking ahead now, EPS is anticipated to climb by 1.0% during the coming year according to the ten analysts following the company. With the market predicted to deliver 2.7% growth , the company is positioned for a comparable earnings result.

With this information, we find it odd that Emaar Development PJSC is trading at a P/E lower than the market. Apparently some shareholders are doubtful of the forecasts and have been accepting lower selling prices.

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

Even after such a strong price move, Emaar Development PJSC's P/E still trails the rest of the market significantly. 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.

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. There could be some unobserved threats to earnings preventing the P/E ratio from matching the outlook. At least the risk of a price drop looks to be subdued, but investors seem to think future earnings could see some volatility.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 1 warning sign with Emaar Development PJSC, and understanding should be part of your investment process.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.