Earnings Working Against Emirates Insurance Company P.J.S.C.'s (ADX:EIC) Share Price

When close to half the companies in the United Arab Emirates have price-to-earnings ratios (or "P/E's") above 14x, you may consider Emirates Insurance Company P.J.S.C. (ADX:EIC) as an attractive investment with its 9.2x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

Emirates Insurance Company P.J.S.C certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

Check out our latest analysis for Emirates Insurance Company P.J.S.C

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Emirates Insurance Company P.J.S.C's earnings, revenue and cash flow.

Does Growth Match The Low P/E?

In order to justify its P/E ratio, Emirates Insurance Company P.J.S.C would need to produce sluggish growth that's trailing the market.

Retrospectively, the last year delivered an exceptional 138% gain to the company's bottom line. Still, incredibly EPS has fallen 12% in total from three years ago, which is quite disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Weighing that medium-term earnings trajectory against the broader market's one-year forecast for expansion of 0.3% shows it's an unpleasant look.

In light of this, it's understandable that Emirates Insurance Company P.J.S.C's P/E would sit below the majority of other companies. However, we think shrinking earnings are unlikely to lead to a stable P/E over the longer term, which could set up shareholders for future disappointment. Even just maintaining these prices could be difficult to achieve as recent earnings trends are already weighing down the shares.

The Final Word

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 Emirates Insurance Company P.J.S.C revealed its shrinking earnings over the medium-term are contributing to its low P/E, given the market is set to grow. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. If recent medium-term earnings trends continue, it's hard to see the share price moving strongly in either direction 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 Emirates Insurance Company P.J.S.C (1 is concerning!) that you need to be mindful 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com