Agthia Group PJSC's (ADX:AGTHIA) Share Price Matching Investor Opinion

Agthia Group PJSC's (ADX:AGTHIA) price-to-earnings (or "P/E") ratio of 13.8x might make it look like a sell right now compared to the market in the United Arab Emirates, where around half of the companies have P/E ratios below 11x and even P/E's below 6x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's lofty.

Agthia Group PJSC has been struggling lately as its earnings have declined faster than most other companies. It might be that many expect the dismal earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be very nervous about the viability of the share price.

Check out our latest analysis for Agthia Group PJSC

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

In order to justify its P/E ratio, Agthia Group PJSC would need to produce impressive growth in excess of the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 39%. This means it has also seen a slide in earnings over the longer-term as EPS is down 48% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Shifting to the future, estimates from the twin analysts covering the company suggest earnings growth will be highly resilient over the next three years growing by 6.9% per year. With the rest of the market predicted to shrink by 0.1% per annum, that would be a fantastic result.

With this information, we can see why Agthia Group PJSC is trading at such a high P/E compared to the market. At this time, shareholders aren't keen to offload something that is potentially eyeing a much more prosperous future.

What We Can Learn From Agthia Group PJSC'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.

As we suspected, our examination of Agthia Group PJSC's analyst forecasts revealed that its superior earnings outlook against a shaky market is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Our only concern is whether its earnings trajectory can keep outperforming under these tough market conditions. Although, if the company's prospects don't change they will continue to provide strong support to the share price.

There are also other vital risk factors to consider before investing and we've discovered 1 warning sign for Agthia Group PJSC that you should be aware of.

If you're unsure about the strength of Agthia Group PJSC'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. 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.
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