Abu Dhabi National Oil Company for Distribution PJSC (ADX:ADNOCDIST) Investors Are Less Pessimistic Than Expected

When close to half the companies in the United Arab Emirates have price-to-earnings ratios (or "P/E's") below 12x, you may consider Abu Dhabi National Oil Company for Distribution PJSC (ADX:ADNOCDIST) as a stock to potentially avoid with its 17.4x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

We've discovered 2 warning signs about Abu Dhabi National Oil Company for Distribution PJSC. View them for free.

Abu Dhabi National Oil Company for Distribution PJSC could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. If not, then existing shareholders may be extremely nervous about the viability of the share price.

View our latest analysis for Abu Dhabi National Oil Company for Distribution PJSC

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Abu Dhabi National Oil Company for Distribution PJSC.

Does Growth Match The High P/E?

The only time you'd be truly comfortable seeing a P/E as high as Abu Dhabi National Oil Company for Distribution PJSC's is when the company's growth is on track to outshine the market.

Retrospectively, the last year delivered a frustrating 7.0% decrease to the company's bottom line. This has soured the latest three-year period, which nevertheless managed to deliver a decent 7.5% overall rise in EPS. So we can start by confirming that the company has generally done a good job of growing earnings over that time, even though it had some hiccups along the way.

Shifting to the future, estimates from the eleven analysts covering the company suggest earnings should grow by 6.5% per annum over the next three years. Meanwhile, the rest of the market is forecast to expand by 7.8% per year, which is not materially different.

With this information, we find it interesting that Abu Dhabi National Oil Company for Distribution PJSC is trading at a high P/E compared to the market. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. Although, additional gains will be difficult to achieve as this level of earnings growth is likely to weigh down the share price eventually.

What We Can Learn From Abu Dhabi National Oil Company for Distribution PJSC's P/E?

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Our examination of Abu Dhabi National Oil Company for Distribution PJSC's analyst forecasts revealed that its market-matching earnings outlook isn't impacting its high P/E as much as we would have predicted. When we see an average earnings outlook with market-like growth, we suspect the share price is at risk of declining, sending the high P/E lower. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Having said that, be aware Abu Dhabi National Oil Company for Distribution PJSC is showing 2 warning signs in our investment analysis, and 1 of those is a bit concerning.

You might be able to find a better investment than Abu Dhabi National Oil Company for Distribution PJSC. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.