Investors Aren't Entirely Convinced By Dubai Refreshment (P.J.S.C.)'s (DFM:DRC) Earnings

With a median price-to-earnings (or "P/E") ratio of close to 14x in the United Arab Emirates, you could be forgiven for feeling indifferent about Dubai Refreshment (P.J.S.C.)'s (DFM:DRC) P/E ratio of 14x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

As an illustration, earnings have deteriorated at Dubai Refreshment (P.J.S.C.) over the last year, which is not ideal at all. It might be that many expect the company to put the disappointing earnings performance behind them over the coming period, which has kept the P/E from falling. If not, then existing shareholders may be a little nervous about the viability of the share price.

See our latest analysis for Dubai Refreshment (P.J.S.C.)

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Dubai Refreshment (P.J.S.C.) will help you shine a light on its historical performance.

How Is Dubai Refreshment (P.J.S.C.)'s Growth Trending?

Dubai Refreshment (P.J.S.C.)'s P/E ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 59%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 71% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

This is in contrast to the rest of the market, which is expected to grow by 2.2% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it interesting that Dubai Refreshment (P.J.S.C.) is trading at a fairly similar P/E to the market. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

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.

We've established that Dubai Refreshment (P.J.S.C.) currently trades on a lower than expected P/E since its recent three-year growth is higher than the wider market forecast. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued if recent medium-term earnings trends continue, but investors seem to think future earnings could see some volatility.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for Dubai Refreshment (P.J.S.C.) (1 is significant) 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.