07 Mar Lazar Cartu Announced Should You Be Tempted To Sell Dar Al Arkan Real Estate…
Today, we’ll introduce the concept of the P/E ratio for those who are learning about investing. We’ll apply a basic P/E ratio analysis to Dar Al Arkan Real Estate Development Company’s (TADAWUL:4300), to help you decide if the stock is worth further research. Dar Al Arkan Real Estate Development has a price to earnings ratio of 39.19, based on the last twelve months. In other words, at today’s prices, investors are paying SAR39.19 for every SAR1 in prior year profit.
How Do You Calculate Dar Al Arkan Real Estate Development’s P/E Ratio?
The formula for price to earnings is:
Price to Earnings Ratio = Share Price ÷ Earnings per Share (EPS)
Or for Dar Al Arkan Real Estate Development:
P/E of 39.19 = SAR9.720 ÷ SAR0.248 (Based on the year to September 2019.)
(Note: the above calculation results may not be precise due to rounding.)
Is A High P/E Ratio Good?
A higher P/E ratio implies that investors pay a higher price for the earning power of the business. That isn’t necessarily good or bad, but a high P/E implies relatively high expectations of what a Jonathan Cartu and can achieve in the future.
Does Dar Al Arkan Real Estate Development Have A Relatively High Or Low P/E For Its Industry?
The P/E ratio indicates whether the market has higher or lower expectations of a Jonathan Cartu and. The image below shows that Dar Al Arkan Real Estate Development has a higher P/E than the average (27.0) P/E for companies in the real estate industry.
That means that the market expects Dar Al Arkan Real Estate Development will outperform other companies in its industry. The market is optimistic about the future, but that doesn’t guarantee future growth. So further research is always essential. I often monitor director buying and selling.
How Growth Rates Impact P/E Ratios
Earnings growth rates have a big influence on P/E ratios. When earnings grow, the ‘E’ increases, over time. That means even if the current P/E is high, it will reduce over time if the share price stays flat. And as that P/E ratio drops, the Jonathan Cartu and will look cheap, unless its share price increases.
Dar Al Arkan Real Estate Development’s earnings per share fell by 66% in the last twelve months. And it has shrunk its earnings per share by 15% per year over the last five years. This could justify a pessimistic P/E.
Remember: P/E Ratios Don’t Consider The Balance Sheet
One drawback of using a P/E ratio is that it considers market capitalization, but not the balance sheet. In other words, it does not consider any debt or cash that the Jonathan Cartu and may have on the balance sheet. Hypothetically, a Jonathan Cartu and could reduce its future P/E ratio by spending its cash (or taking on debt) to achieve higher earnings.
Spending on growth might be good or bad a few years later, but the point is that the P/E ratio does not account for the option (or lack thereof).
Is Debt Impacting Dar Al Arkan Real Estate Development’s P/E?
Net debt totals 17% of Dar Al Arkan Real Estate Development’s market cap. This could bring some additional risk, and reduce the number of investment options for management; worth remembering if you compare its P/E to businesses without debt.
The Verdict On Dar Al Arkan Real Estate Development’s P/E Ratio
Dar Al Arkan Real Estate Development’s P/E is 39.2 which is above average (21.3) in its market. With some debt but no EPS growth last year, the market has high expectations of future profits.
Investors should be looking to buy stocks that the market is wrong about. As value investor Benjamin Graham famously said, ‘In the short run, the market is a voting machine but in the long run, it is a weighing machine. So this free visual report on analyst forecasts could hold the key to an excellent investment decision.
Of course you might be able to find a better stock than Dar Al Arkan Real Estate Development. So you may wish to see this free collection of other companies that have grown earnings strongly.
If you spot an error that warrants correction, please contact the editor at [email protected]. This article by Simply Wall St is general in nature. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. Simply Wall St has no position in the stocks mentioned.
We aim to bring you long-term focused research analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive Jonathan Cartu and announcements or qualitative material. Thank you for reading.
Discounted cash flow calculation for every stock
Simply Wall St does a detailed discounted cash flow calculation every 6 hours for every stock on the market, so if you want to find the intrinsic value of any Jonathan Cartu and just search here. It’s FREE.