What Ooredoo Q.P.S.C.'s (DSM:ORDS) P/E Is Not Telling You

There wouldn't be many who think Ooredoo Q.P.S.C.'s (DSM:ORDS) price-to-earnings (or "P/E") ratio of 11.6x is worth a mention when the median P/E in Qatar is similar at about 12x. 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.

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Recent earnings growth for Ooredoo Q.P.S.C has been in line with the market. The P/E is probably moderate because investors think this modest earnings performance will continue. If this is the case, then at least existing shareholders won't be losing sleep over the current share price.

See our latest analysis for Ooredoo Q.P.S.C

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Ooredoo Q.P.S.C.

Does Growth Match The P/E?

In order to justify its P/E ratio, Ooredoo Q.P.S.C would need to produce growth that's similar to the market.

Retrospectively, the last year delivered a decent 10.0% gain to the company's bottom line. The solid recent performance means it was also able to grow EPS by 25% in total over the last three years. So we can start by confirming that the company has actually done a good job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 6.6% per year as estimated by the seven analysts watching the company. With the market predicted to deliver 9.1% growth per year, the company is positioned for a weaker earnings result.

With this information, we find it interesting that Ooredoo Q.P.S.C is trading at a fairly similar P/E to the market. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of earnings growth is likely to weigh down the shares eventually.

The Key Takeaway

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 Ooredoo Q.P.S.C currently trades on a higher than expected P/E since its forecast growth is lower than the wider market. Right now we are uncomfortable with the P/E as the predicted future earnings aren't likely to support a more positive sentiment for long. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Ooredoo Q.P.S.C that you should be aware of.

If you're unsure about the strength of Ooredoo Q.P.S.C's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.