Hily Holding PJSC (ADX:HH) Held Back By Insufficient Growth Even After Shares Climb 32%

Hily Holding PJSC (ADX:HH) shares have continued their recent momentum with a 32% gain in the last month alone. The last 30 days bring the annual gain to a very sharp 30%.

Although its price has surged higher, Hily Holding PJSC's price-to-earnings (or "P/E") ratio of 5.4x might still make it look like a strong buy right now compared to the market in the United Arab Emirates, where around half of the companies have P/E ratios above 14x and even P/E's above 30x are quite common. However, the P/E might be quite low for a reason and it requires further investigation to determine if it's justified.

As an illustration, earnings have deteriorated at Hily Holding PJSC over the last year, which is not ideal at all. It might be that many expect the disappointing earnings performance to continue or accelerate, which has repressed the P/E. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

View our latest analysis for Hily Holding PJSC

Although there are no analyst estimates available for Hily Holding PJSC, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Hily Holding PJSC's Growth Trending?

Hily Holding PJSC's P/E ratio would be typical for a company that's expected to deliver very poor growth or even falling earnings, and importantly, perform much worse than the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 22%. Unfortunately, that's brought it right back to where it started three years ago with EPS growth being virtually non-existent overall during that time. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 7.3% shows it's noticeably less attractive on an annualised basis.

With this information, we can see why Hily Holding PJSC is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Bottom Line On Hily Holding PJSC's P/E

Hily Holding PJSC's recent share price jump still sees its P/E sitting firmly flat on the ground. 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 Hily Holding PJSC maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, 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. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

You always need to take note of risks, for example - Hily Holding PJSC has 2 warning signs we think you should be aware of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a P/E below 20x.

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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.