Qatar Gas Transport Company Limited (Nakilat) (QPSC)'s (DSM:QGTS) Share Price Could Signal Some Risk

Qatar Gas Transport Company Limited (Nakilat) (QPSC)'s (DSM:QGTS) price-to-earnings (or "P/E") ratio of 16x might make it look like a sell right now compared to the market in Qatar, where around half of the companies have P/E ratios below 12x and even P/E's below 10x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.

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Recent times haven't been advantageous for Qatar Gas Transport Company Limited (Nakilat) (QPSC) as its earnings have been rising slower than most other companies. One possibility is that the P/E is high because investors think this lacklustre earnings performance will improve markedly. If not, then existing shareholders may be very nervous about the viability of the share price.

See our latest analysis for Qatar Gas Transport Company Limited (Nakilat) (QPSC)

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Qatar Gas Transport Company Limited (Nakilat) (QPSC).

Does Growth Match The High P/E?

The only time you'd be truly comfortable seeing a P/E as high as Qatar Gas Transport Company Limited (Nakilat) (QPSC)'s is when the company's growth is on track to outshine the market.

Retrospectively, the last year delivered a decent 3.4% gain to the company's bottom line. The solid recent performance means it was also able to grow EPS by 15% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been respectable for the company.

Turning to the outlook, the next three years should generate growth of 5.1% per annum as estimated by the four analysts watching the company. Meanwhile, the rest of the market is forecast to expand by 7.8% per annum, which is noticeably more attractive.

With this information, we find it concerning that Qatar Gas Transport Company Limited (Nakilat) (QPSC) is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than analysts indicate and aren't willing to let go of their stock at any price. 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

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Qatar Gas Transport Company Limited (Nakilat) (QPSC)'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.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Qatar Gas Transport Company Limited (Nakilat) (QPSC) that you should be aware of.

Of course, you might also be able to find a better stock than Qatar Gas Transport Company Limited (Nakilat) (QPSC). 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.