Industries Qatar Q.P.S.C.'s (DSM:IQCD) Shares May Have Run Too Fast Too Soon

When close to half the companies in Qatar have price-to-earnings ratios (or "P/E's") below 12x, you may consider Industries Qatar Q.P.S.C. (DSM:IQCD) as a stock to potentially avoid with its 17.8x 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.

Industries Qatar Q.P.S.C could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. If not, then existing shareholders may be extremely nervous about the viability of the share price.

View our latest analysis for Industries Qatar Q.P.S.C

Want the full picture on analyst estimates for the company? Then our free report on Industries Qatar Q.P.S.C will help you uncover what's on the horizon.

How Is Industries Qatar Q.P.S.C's Growth Trending?

In order to justify its P/E ratio, Industries Qatar Q.P.S.C would need to produce impressive growth in excess of the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 4.9%. As a result, earnings from three years ago have also fallen 44% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Shifting to the future, estimates from the ten analysts covering the company suggest earnings should grow by 4.0% each year over the next three years. With the market predicted to deliver 6.9% growth each year, the company is positioned for a weaker earnings result.

In light of this, it's alarming that Industries Qatar Q.P.S.C's P/E sits above the majority of other companies. 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. There's a good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the growth outlook.

The Key Takeaway

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of Industries Qatar Q.P.S.C'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. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Plus, you should also learn about this 1 warning sign we've spotted with Industries Qatar Q.P.S.C.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and 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.