Some Confidence Is Lacking In Mesaieed Petrochemical Holding Company Q.P.S.C.'s (DSM:MPHC) P/E

With a price-to-earnings (or "P/E") ratio of 23.1x Mesaieed Petrochemical Holding Company Q.P.S.C. (DSM:MPHC) may be sending very bearish signals at the moment, given that almost half of all companies in Qatar have P/E ratios under 13x and even P/E's lower than 11x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

For instance, Mesaieed Petrochemical Holding Company Q.P.S.C's receding earnings in recent times would have to be some food for thought. One possibility is that the P/E is high because investors think the company will still do enough to outperform the broader market in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Mesaieed Petrochemical Holding Company Q.P.S.C

Although there are no analyst estimates available for Mesaieed Petrochemical Holding Company 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 Mesaieed Petrochemical Holding Company Q.P.S.C's Growth Trending?

Mesaieed Petrochemical Holding Company Q.P.S.C's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than 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 32%. This means it has also seen a slide in earnings over the longer-term as EPS is down 31% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

In contrast to the company, the rest of the market is expected to grow by 9.6% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

With this information, we find it concerning that Mesaieed Petrochemical Holding Company Q.P.S.C is trading at a P/E higher than the market. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the recent negative growth rates.

The Final Word

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

Our examination of Mesaieed Petrochemical Holding Company Q.P.S.C revealed its shrinking earnings over the medium-term aren't impacting its high P/E anywhere near as much as we would have predicted, given the market is set to grow. Right now we are increasingly uncomfortable with the high P/E as this earnings performance is highly unlikely to support such positive sentiment for long. If recent medium-term earnings trends continue, it will place shareholders' investments at significant risk and potential investors in danger of paying an excessive premium.

Having said that, be aware Mesaieed Petrochemical Holding Company Q.P.S.C is showing 2 warning signs in our investment analysis, you should know about.

Of course, you might also be able to find a better stock than Mesaieed Petrochemical Holding Company 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.