Investors Appear Satisfied With HAYAH Insurance Company P.J.S.C.'s (ADX:HAYAH) Prospects As Shares Rocket 30%

HAYAH Insurance Company P.J.S.C. (ADX:HAYAH) shares have had a really impressive month, gaining 30% after a shaky period beforehand. The bad news is that even after the stocks recovery in the last 30 days, shareholders are still underwater by about 5.8% over the last year.

Since its price has surged higher, given close to half the companies operating in the United Arab Emirates' Insurance industry have price-to-sales ratios (or "P/S") below 0.8x, you may consider HAYAH Insurance Company P.J.S.C as a stock to potentially avoid with its 2.7x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

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

What Does HAYAH Insurance Company P.J.S.C's P/S Mean For Shareholders?

HAYAH Insurance Company P.J.S.C has been doing a good job lately as it's been growing revenue at a solid pace. It might be that many expect the respectable revenue performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. However, if this isn't the case, investors might get caught out paying too much for the stock.

Although there are no analyst estimates available for HAYAH Insurance Company P.J.S.C, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

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

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

If we review the last year of revenue growth, the company posted a worthy increase of 11%. The latest three year period has also seen an excellent 138% overall rise in revenue, aided somewhat by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Weighing the recent medium-term upward revenue trajectory against the broader industry's one-year forecast for contraction of 7.1% shows it's a great look while it lasts.

With this information, we can see why HAYAH Insurance Company P.J.S.C is trading at a high P/S compared to the industry. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the industry. However, its current revenue trajectory will be very difficult to maintain against the headwinds other companies are facing at the moment.

The Final Word

The large bounce in HAYAH Insurance Company P.J.S.C's shares has lifted the company's P/S handsomely. Using the price-to-sales 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 HAYAH Insurance Company P.J.S.C revealed its growing revenue over the medium-term is helping prop up its high P/S compared to its peers, given the industry is set to shrink. It could be said that investors feel this revenue growth will continue into the future, justifying a higher P/S ratio. We still remain cautious about the company's ability to stay its recent course and swim against the current of the broader industry turmoil. Otherwise, it's hard to see the share price falling strongly in the near future if its revenue performance persists.

It is also worth noting that we have found 3 warning signs for HAYAH Insurance Company P.J.S.C (2 are concerning!) that you need to take into consideration.

If strong companies turning a profit tickle your fancy, then you'll want to check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.