DRDGOLD Limited's (NYSE:DRD) price-to-earnings (or "P/E") ratio of 9.7x might make it look like a buy right now compared to the market in the United States, where around half of the companies have P/E ratios above 17x and even P/E's above 32x are quite common.  However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.  

The earnings growth achieved at DRDGOLD over the last year would be more than acceptable for most companies.   One possibility is that the P/E is low because investors think this respectable earnings growth might actually underperform the broader market in the near future.  If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.    

NYSE:DRD Price to Earnings Ratio vs Industry April 25th 2024

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on DRDGOLD will help you shine a light on its historical performance.  

Is There Any Growth For DRDGOLD?  

In order to justify its P/E ratio, DRDGOLD would need to produce sluggish growth that's trailing the market.  

Retrospectively, the last year delivered a decent 15% gain to the company's bottom line.   EPS has also lifted 5.8% in aggregate from three years ago, partly thanks to the last 12 months of growth.  Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.  

Comparing that to the market, which is predicted to deliver 12% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

In light of this, it's understandable that DRDGOLD's P/E sits below the majority of other companies.  It seems most investors are expecting to see the recent limited growth rates continue into the future and are only willing to pay a reduced amount for the stock.  

The Final Word

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that DRDGOLD maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected.  Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises.  If recent medium-term earnings trends continue, it's hard to see the share price rising strongly in the near future under these circumstances.    

We don't want to rain on the parade too much, but we did also find 2 warning signs for DRDGOLD (1 makes us a bit uncomfortable!) that you need to be mindful 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.