What Industries Qatar Q.P.S.C.'s (DSM:IQCD) P/E Is Not Telling You

With a price-to-earnings (or "P/E") ratio of 17.2x Industries Qatar Q.P.S.C. (DSM:IQCD) may be sending bearish signals at the moment, given that almost half of all companies in Qatar have P/E ratios under 12x and even P/E's lower than 11x are not unusual. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

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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.

Check out our latest analysis for Industries Qatar Q.P.S.C

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What Are Growth Metrics Telling Us About The High P/E?

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 13%. As a result, earnings from three years ago have also fallen 55% overall. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Shifting to the future, estimates from the twelve analysts covering the company suggest earnings should grow by 7.8% each year over the next three years. With the market predicted to deliver 6.6% growth each year, the company is positioned for a comparable earnings result.

In light of this, it's curious that Industries Qatar Q.P.S.C's P/E sits above the majority of other companies. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for disappointment if the P/E falls to levels more in line with the growth outlook.

What We Can Learn From Industries Qatar Q.P.S.C'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 Industries Qatar Q.P.S.C's analyst forecasts revealed that its market-matching earnings outlook isn't impacting its high P/E as much as we would have predicted. Right now we are uncomfortable with the relatively high share price as the predicted future earnings aren't likely to support such positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Having said that, be aware Industries Qatar Q.P.S.C is showing 1 warning sign in our investment analysis, you should know about.

You might be able to find a better investment than Industries Qatar Q.P.S.C. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.