There's Reason For Concern Over Industries Qatar Q.P.S.C.'s (DSM:IQCD) Price

When close to half the companies in Qatar have price-to-earnings ratios (or "P/E's") below 13x, you may consider Industries Qatar Q.P.S.C. (DSM:IQCD) as a stock to potentially avoid with its 15.8x 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.

While the market has experienced earnings growth lately, Industries Qatar Q.P.S.C's earnings have gone into reverse gear, which is not great. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be extremely nervous about the viability of the share price.

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

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Industries Qatar Q.P.S.C.

Is There Enough Growth For Industries Qatar Q.P.S.C?

The only time you'd be truly comfortable seeing a P/E as high as Industries Qatar Q.P.S.C's is when the company's growth is on track to outshine 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 11%. This means it has also seen a slide in earnings over the longer-term as EPS is down 20% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 2.5% per year as estimated by the nine analysts watching the company. With the market predicted to deliver 7.4% growth per year, the company is positioned for a weaker earnings result.

With this information, we find it concerning that Industries Qatar Q.P.S.C 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 Final Word

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. When we see a weak earnings outlook with slower than market growth, we suspect the share price is at risk of declining, sending the high P/E lower. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Industries Qatar Q.P.S.C 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.

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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.