Stock Analysis

Some Shareholders Feeling Restless Over Abu Dhabi National Energy Company PJSC's (ADX:TAQA) P/E Ratio

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With a price-to-earnings (or "P/E") ratio of 20.6x Abu Dhabi National Energy Company PJSC (ADX:TAQA) 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 14x and even P/E's lower than 8x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.

With earnings growth that's superior to most other companies of late, Abu Dhabi National Energy Company PJSC has been doing relatively well. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Abu Dhabi National Energy Company PJSC

ADX:TAQA Price to Earnings Ratio vs Industry April 16th 2024
If you'd like to see what analysts are forecasting going forward, you should check out our free report on Abu Dhabi National Energy Company PJSC.

How Is Abu Dhabi National Energy Company PJSC's Growth Trending?

In order to justify its P/E ratio, Abu Dhabi National Energy Company PJSC would need to produce impressive growth in excess of the market.

Retrospectively, the last year delivered an exceptional 128% gain to the company's bottom line. Pleasingly, EPS has also lifted 280% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Shifting to the future, estimates from the one analyst covering the company suggest earnings growth is heading into negative territory, declining 16% per year over the next three years. That's not great when the rest of the market is expected to grow by 6.2% per annum.

In light of this, it's alarming that Abu Dhabi National Energy Company PJSC's P/E sits above the majority of other companies. Apparently many investors in the company reject the analyst cohort's pessimism and aren't willing to let go of their stock at any price. There's a very good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the negative growth outlook.

What We Can Learn From Abu Dhabi National Energy Company PJSC's P/E?

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 National Energy Company PJSC currently trades on a much higher than expected P/E for a company whose earnings are forecast to decline. Right now we are increasingly uncomfortable with the high P/E as the predicted future earnings are highly unlikely to support such positive sentiment for long. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Don't forget that there may be other risks. For instance, we've identified 2 warning signs for Abu Dhabi National Energy Company PJSC that you should be aware of.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

Valuation is complex, but we're helping make it simple.

Find out whether Abu Dhabi National Energy Company PJSC is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.