Getting In Cheap On ADNOC Drilling Company P.J.S.C. (ADX:ADNOCDRILL) Is Unlikely

Simply Wall St · 10/16 03:52

With a price-to-earnings (or "P/E") ratio of 18.1x ADNOC Drilling Company P.J.S.C. (ADX:ADNOCDRILL) may be sending bearish signals at the moment, given that almost half of all companies in the United Arab Emirates have P/E ratios under 13x and even P/E's lower than 7x are not unusual. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Recent times have been advantageous for ADNOC Drilling Company P.J.S.C as its earnings have been rising faster than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for ADNOC Drilling Company P.J.S.C

pe-multiple-vs-industry
ADX:ADNOCDRILL Price to Earnings Ratio vs Industry October 16th 2024
Keen to find out how analysts think ADNOC Drilling Company P.J.S.C's future stacks up against the industry? In that case, our free report is a great place to start.

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

In order to justify its P/E ratio, ADNOC Drilling Company P.J.S.C would need to produce impressive growth in excess of the market.

If we review the last year of earnings growth, the company posted a terrific increase of 33%. The latest three year period has also seen an excellent 111% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 7.3% each year as estimated by the twelve analysts watching the company. With the market predicted to deliver 5.9% growth per year, the company is positioned for a comparable earnings result.

In light of this, it's curious that ADNOC Drilling Company P.J.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. Although, additional gains will be difficult to achieve as this level of earnings growth is likely to weigh down the share price eventually.

What We Can Learn From ADNOC Drilling Company P.J.S.C's P/E?

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.

We've established that ADNOC Drilling Company P.J.S.C currently trades on a higher than expected P/E since its forecast growth is only in line with the wider market. When we see an average earnings outlook with market-like growth, we suspect the share price is at risk of declining, sending the high P/E lower. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

Before you settle on your opinion, we've discovered 2 warning signs for ADNOC Drilling Company P.J.S.C that you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).