Estithmar Holding Q.P.S.C.'s (DSM:IGRD) 27% Share Price Surge Not Quite Adding Up

The Estithmar Holding Q.P.S.C. (DSM:IGRD) share price has done very well over the last month, posting an excellent gain of 27%. Looking further back, the 20% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

Since its price has surged higher, given close to half the companies in Qatar have price-to-earnings ratios (or "P/E's") below 12x, you may consider Estithmar Holding Q.P.S.C as a stock to avoid entirely with its 19.4x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Earnings have risen firmly for Estithmar Holding Q.P.S.C recently, which is pleasing to see. One possibility is that the P/E is high because investors think this respectable earnings growth will be enough to outperform the broader market in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.

See our latest analysis for Estithmar Holding Q.P.S.C

Although there are no analyst estimates available for Estithmar Holding Q.P.S.C, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Estithmar Holding Q.P.S.C's Growth Trending?

In order to justify its P/E ratio, Estithmar Holding Q.P.S.C would need to produce outstanding growth well in excess of the market.

Retrospectively, the last year delivered an exceptional 16% gain to the company's bottom line. The latest three year period has also seen a 11% overall rise in EPS, aided extensively by its short-term performance. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 9.4% shows it's noticeably less attractive on an annualised basis.

With this information, we find it concerning that Estithmar Holding Q.P.S.C is trading at a P/E higher than the market. It seems most investors are ignoring the fairly limited recent growth rates and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.

The Final Word

The strong share price surge has got Estithmar Holding Q.P.S.C's P/E rushing to great heights as well. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Estithmar Holding Q.P.S.C currently trades on a much higher than expected P/E since its recent three-year growth is lower than the wider market forecast. Right now we are increasingly uncomfortable with the high P/E as this earnings performance isn't likely to support such positive sentiment for long. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.

You should always think about risks. Case in point, we've spotted 2 warning signs for Estithmar Holding Q.P.S.C you should be aware of.

Of course, you might also be able to find a better stock than Estithmar Holding Q.P.S.C. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.