Shareholders Should Be Pleased With Abu Dhabi National Oil Company for Distribution PJSC's (ADX:ADNOCDIST) Price

Abu Dhabi National Oil Company for Distribution PJSC's (ADX:ADNOCDIST) price-to-earnings (or "P/E") ratio of 19x might make it look like a sell right now compared to the market in the United Arab Emirates, where around half of the companies have P/E ratios below 15x and even P/E's below 8x are quite common. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

While the market has experienced earnings growth lately, Abu Dhabi National Oil Company for Distribution PJSC's earnings have gone into reverse gear, which is not great. 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.

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

Keen to find out how analysts think Abu Dhabi National Oil Company for Distribution PJSC's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Growth For Abu Dhabi National Oil Company for Distribution PJSC?

There's an inherent assumption that a company should outperform the market for P/E ratios like Abu Dhabi National Oil Company for Distribution PJSC's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 19% decrease to the company's bottom line. That put a dampener on the good run it was having over the longer-term as its three-year EPS growth is still a noteworthy 16% in total. 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.

Turning to the outlook, the next three years should generate growth of 13% per annum as estimated by the ten analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 5.5% each year, which is noticeably less attractive.

In light of this, it's understandable that Abu Dhabi National Oil Company for Distribution PJSC's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

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.

As we suspected, our examination of Abu Dhabi National Oil Company for Distribution PJSC's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Abu Dhabi National Oil Company for Distribution PJSC that you need to be mindful of.

Of course, you might also be able to find a better stock than Abu Dhabi National Oil Company for Distribution PJSC. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.