Emirates Integrated Telecommunications Company PJSC's (DFM:DU) Popularity With Investors Is Under Threat From Overpricing

It's not a stretch to say that Emirates Integrated Telecommunications Company PJSC's (DFM:DU) price-to-earnings (or "P/E") ratio of 14.8x right now seems quite "middle-of-the-road" compared to the market in the United Arab Emirates, where the median P/E ratio is around 13x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Emirates Integrated Telecommunications Company PJSC certainly has been doing a good job lately as it's been growing earnings more than most other companies. One possibility is that the P/E is moderate because investors think this strong earnings performance might be about to tail off. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

View our latest analysis for Emirates Integrated Telecommunications Company PJSC

Keen to find out how analysts think Emirates Integrated Telecommunications Company PJSC's future stacks up against the industry? In that case, our free report is a great place to start.

Does Growth Match The P/E?

The only time you'd be comfortable seeing a P/E like Emirates Integrated Telecommunications Company PJSC's is when the company's growth is tracking the market closely.

Retrospectively, the last year delivered an exceptional 48% gain to the company's bottom line. The latest three year period has also seen an excellent 177% overall rise in EPS, aided by its short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Shifting to the future, estimates from the five analysts covering the company suggest earnings should grow by 3.7% per year over the next three years. Meanwhile, the rest of the market is forecast to expand by 6.9% per annum, which is noticeably more attractive.

With this information, we find it interesting that Emirates Integrated Telecommunications Company PJSC is trading at a fairly similar P/E to the market. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

The Key Takeaway

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Emirates Integrated Telecommunications Company PJSC's analyst forecasts revealed that its inferior earnings outlook isn't impacting its P/E as much as we would have predicted. Right now we are uncomfortable with the P/E as the predicted future earnings aren't likely to support a more positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

It is also worth noting that we have found 1 warning sign for Emirates Integrated Telecommunications Company PJSC that you need to take into consideration.

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.