Why Investors Shouldn't Be Surprised By Abu Dhabi Ports Company PJSC's (ADX:ADPORTS) P/E

Abu Dhabi Ports Company PJSC's (ADX:ADPORTS) price-to-earnings (or "P/E") ratio of 23.3x might make it look like a strong sell right now compared to the market in the United Arab Emirates, where around half of the companies have P/E ratios below 13x and even P/E's below 8x are quite common. However, the P/E might be quite 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 Ports Company 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. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Abu Dhabi Ports Company PJSC

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

How Is Abu Dhabi Ports Company PJSC's Growth Trending?

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

Retrospectively, the last year delivered a frustrating 13% decrease to the company's bottom line. Still, the latest three year period has seen an excellent 139% overall rise in EPS, in spite of its unsatisfying short-term performance. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 24% per year during the coming three years according to the four analysts following the company. With the market only predicted to deliver 5.0% per annum, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Abu Dhabi Ports Company PJSC's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Abu Dhabi Ports Company PJSC maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. 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.

Having said that, be aware Abu Dhabi Ports Company PJSC is showing 2 warning signs in our investment analysis, and 1 of those can't be ignored.

You might be able to find a better investment than Abu Dhabi Ports Company 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.