Dalata Hotel Group plc's (ISE:DHG) Price Is Right But Growth Is Lacking

Dalata Hotel Group plc's (ISE:DHG) price-to-earnings (or "P/E") ratio of 11x might make it look like a buy right now compared to the market in Ireland, where around half of the companies have P/E ratios above 15x and even P/E's above 19x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

Dalata Hotel Group has been struggling lately as its earnings have declined faster than most other companies. The P/E is probably low because investors think this poor earnings performance isn't going to improve at all. You'd much rather the company wasn't bleeding earnings if you still believe in the business. If not, then existing shareholders will probably struggle to get excited about the future direction of the share price.

View our latest analysis for Dalata Hotel Group

Keen to find out how analysts think Dalata Hotel Group's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Dalata Hotel Group's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as low as Dalata Hotel Group's is when the company's growth is on track to lag the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 8.9%. This has erased any of its gains during the last three years, with practically no change in EPS being achieved in total. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Looking ahead now, EPS is anticipated to climb by 5.2% each year during the coming three years according to the five analysts following the company. Meanwhile, the rest of the market is forecast to expand by 11% per year, which is noticeably more attractive.

With this information, we can see why Dalata Hotel Group is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

What We Can Learn From Dalata Hotel Group's P/E?

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Dalata Hotel Group maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Dalata Hotel Group 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).

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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.