Subdued Growth No Barrier To Abu Dhabi National Oil Company for Distribution PJSC's (ADX:ADNOCDIST) Price

With a price-to-earnings (or "P/E") ratio of 18x Abu Dhabi National Oil Company for Distribution PJSC (ADX:ADNOCDIST) may be sending bearish signals at the moment, given that almost half of all companies in the United Arab Emirates have P/E ratios under 12x and even P/E's lower than 8x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

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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.

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How Is Abu Dhabi National Oil Company for Distribution PJSC's Growth Trending?

Abu Dhabi National Oil Company for Distribution PJSC's P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.

Retrospectively, the last year delivered a frustrating 4.5% decrease to the company's bottom line. This means it has also seen a slide in earnings over the longer-term as EPS is down 3.7% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 4.9% each year during the coming three years according to the eleven analysts following the company. That's shaping up to be materially lower than the 8.6% per annum growth forecast for the broader market.

With this information, we find it concerning that Abu Dhabi National Oil Company for Distribution PJSC is trading at a P/E higher than the market. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

The Bottom Line On Abu Dhabi National Oil Company for Distribution PJSC's P/E

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 Abu Dhabi National Oil Company for Distribution PJSC currently trades on a much higher than expected P/E since its forecast growth is lower than the wider market. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings aren't likely to support such positive sentiment for long. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Abu Dhabi National Oil Company for Distribution PJSC, and understanding them should be part of your investment process.

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.