HAYAH Insurance Company P.J.S.C. (ADX:HAYAH) Stocks Shoot Up 42% But Its P/E Still Looks Reasonable

HAYAH Insurance Company P.J.S.C. (ADX:HAYAH) shareholders have had their patience rewarded with a 42% share price jump in the last month. The last 30 days bring the annual gain to a very sharp 46%.

Following the firm bounce in price, HAYAH Insurance Company P.J.S.C may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 54.3x, since almost half of all companies in the United Arab Emirates have P/E ratios under 14x and even P/E's lower than 9x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

With earnings growth that's exceedingly strong of late, HAYAH Insurance Company P.J.S.C has been doing very well. The P/E is probably high because investors think this strong earnings growth will be enough to outperform the broader market in the near future. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for HAYAH 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 HAYAH Insurance Company P.J.S.C's earnings, revenue and cash flow.

How Is HAYAH Insurance Company P.J.S.C's Growth Trending?

HAYAH Insurance Company P.J.S.C's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

If we review the last year of earnings growth, the company posted a terrific increase of 167%. The latest three year period has also seen an excellent 449% overall rise in EPS, aided by its short-term performance. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 4.9% shows it's noticeably more attractive on an annualised basis.

In light of this, it's understandable that HAYAH Insurance Company P.J.S.C's P/E sits above the majority of other companies. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse.

The Key Takeaway

Shares in HAYAH Insurance Company P.J.S.C have built up some good momentum lately, which has really inflated its P/E. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that HAYAH Insurance Company P.J.S.C maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, as expected. Right now shareholders are comfortable with the P/E as they are quite confident earnings aren't under threat. If recent medium-term earnings trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

Having said that, be aware HAYAH Insurance Company P.J.S.C is showing 2 warning signs in our investment analysis, you should know about.

If P/E ratios interest you, you may wish to see this free collection of other companies that have grown earnings strongly and trade on P/E's 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.