There's Reason For Concern Over Abu Dhabi National Oil Company for Distribution PJSC's (ADX:ADNOCDIST) Price

When close to half the companies in the United Arab Emirates have price-to-earnings ratios (or "P/E's") below 13x, you may consider Abu Dhabi National Oil Company for Distribution PJSC (ADX:ADNOCDIST) as a stock to potentially avoid with its 17.1x 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.

Abu Dhabi National Oil Company for Distribution PJSC hasn't been tracking well recently as its declining earnings compare poorly to other companies, which have seen some growth on average. 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.

Check out 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.

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

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.

Taking a look back first, we see that there was hardly any earnings per share growth to speak of for the company over the past year. The longer-term trend has been no better as the company has no earnings growth to show for over the last three years either. Accordingly, shareholders probably wouldn't have been satisfied with the complete absence of medium-term growth.

Turning to the outlook, the next three years should generate growth of 3.6% per year as estimated by the ten analysts watching the company. That's shaping up to be similar to the 4.3% per year growth forecast for the broader market.

In light of this, it's curious that Abu Dhabi National Oil Company for Distribution PJSC's P/E sits above the majority of other companies. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for 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

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Abu Dhabi National Oil Company for Distribution PJSC currently trades on a higher than expected P/E since its forecast growth is only in line with the wider market. 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.

Before you settle on your opinion, we've discovered 2 warning signs for Abu Dhabi National Oil Company for Distribution PJSC that you should be aware of.

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.

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