There's Reason For Concern Over Taaleem Holdings PJSC's (DFM:TAALEEM) Price

With a price-to-earnings (or "P/E") ratio of 25.3x Taaleem Holdings PJSC (DFM:TAALEEM) may be sending very bearish signals at the moment, given that almost half of all companies in the United Arab Emirates have P/E ratios under 11x and even P/E's lower than 7x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

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Taaleem Holdings PJSC certainly has been doing a good job lately as it's been growing earnings more than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Taaleem Holdings PJSC

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Taaleem Holdings PJSC.

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

There's an inherent assumption that a company should far outperform the market for P/E ratios like Taaleem Holdings PJSC's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 18% gain to the company's bottom line. Pleasingly, EPS has also lifted 49% in aggregate from three years ago, thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 4.9% each year during the coming three years according to the two analysts following the company. That's shaping up to be similar to the 6.4% per annum growth forecast for the broader market.

With this information, we find it interesting that Taaleem Holdings PJSC is trading at a high P/E compared to the market. It seems most investors are ignoring the fairly average growth expectations and are willing to pay up for exposure to the stock. These shareholders may be setting themselves up for disappointment if the P/E falls to levels more in line with the growth outlook.

What We Can Learn From Taaleem Holdings PJSC's P/E?

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

Our examination of Taaleem Holdings PJSC's analyst forecasts revealed that its market-matching earnings outlook isn't impacting its high P/E as much as we would have predicted. Right now we are uncomfortable with the relatively high share price as the predicted future earnings aren't likely to support such positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

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

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.