What Dalrymple Bay Infrastructure Limited's (ASX:DBI) P/E Is Not Telling You

When close to half the companies in Australia have price-to-earnings ratios (or "P/E's") below 17x, you may consider Dalrymple Bay Infrastructure Limited (ASX:DBI) as a stock to potentially avoid with its 23.9x 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.

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Dalrymple Bay Infrastructure certainly has been doing a good job lately as it's been growing earnings more than most other companies. 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.

See our latest analysis for Dalrymple Bay Infrastructure

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How Is Dalrymple Bay Infrastructure's Growth Trending?

There's an inherent assumption that a company should outperform the market for P/E ratios like Dalrymple Bay Infrastructure's to be considered reasonable.

If we review the last year of earnings growth, the company posted a worthy increase of 11%. Ultimately though, it couldn't turn around the poor performance of the prior period, with EPS shrinking 36% 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 12% each year during the coming three years according to the five analysts following the company. With the market predicted to deliver 15% growth per annum, the company is positioned for a weaker earnings result.

With this information, we find it concerning that Dalrymple Bay Infrastructure 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. Only the boldest would assume these prices are sustainable as this level of earnings growth is likely to weigh heavily on the share price eventually.

The Bottom Line On Dalrymple Bay Infrastructure's P/E

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

Our examination of Dalrymple Bay Infrastructure's analyst forecasts revealed that its inferior earnings outlook isn't impacting its high P/E anywhere near as much as we would have predicted. 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. This places shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Dalrymple Bay Infrastructure you should know about.

If these risks are making you reconsider your opinion on Dalrymple Bay Infrastructure, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.