Take Care Before Jumping Onto Agthia Group PJSC (ADX:AGTHIA) Even Though It's 26% Cheaper

To the annoyance of some shareholders, Agthia Group PJSC (ADX:AGTHIA) shares are down a considerable 26% in the last month, which continues a horrid run for the company. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 11% in that time.

In spite of the heavy fall in price, there still wouldn't be many who think Agthia Group PJSC's price-to-earnings (or "P/E") ratio of 13.2x is worth a mention when the median P/E in the United Arab Emirates is similar at about 13x. While this might not raise any eyebrows, if the P/E ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

Agthia Group PJSC certainly has been doing a good job lately as it's been growing earnings more than most other companies. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

See our latest analysis for Agthia Group PJSC

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Does Growth Match The P/E?

In order to justify its P/E ratio, Agthia Group PJSC would need to produce growth that's similar to the market.

If we review the last year of earnings growth, the company posted a worthy increase of 13%. The latest three year period has also seen a 29% overall rise in EPS, aided somewhat by its short-term performance. Accordingly, shareholders would have probably been satisfied with the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 14% per year during the coming three years according to the four analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 6.9% each year, which is noticeably less attractive.

In light of this, it's curious that Agthia Group PJSC's P/E sits in line with the majority of other companies. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Key Takeaway

Agthia Group PJSC's plummeting stock price has brought its P/E right back to the rest of the market. 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.

Our examination of Agthia Group PJSC's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E as much as we would have predicted. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing pressure on the P/E ratio. It appears some are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Agthia Group PJSC with six simple checks on some of these key factors.

Of course, you might also be able to find a better stock than Agthia Group PJSC. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.