Sharjah Insurance Company P.S.C. (ADX:SICO) Doing What It Can To Lift Shares

Sharjah Insurance Company P.S.C.'s (ADX:SICO) price-to-earnings (or "P/E") ratio of 10.9x might make it look like a buy right now compared to the market in the United Arab Emirates, where around half of the companies have P/E ratios above 16x and even P/E's above 28x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

As an illustration, earnings have deteriorated at Sharjah Insurance Company P.S.C over the last year, which is not ideal at all. It might be that many expect the disappointing earnings performance to continue or accelerate, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

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

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Sharjah Insurance Company P.S.C will help you shine a light on its historical performance.

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

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

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 51%. However, a few very strong years before that means that it was still able to grow EPS by an impressive 251% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 2.9% shows it's noticeably more attractive on an annualised basis.

With this information, we find it odd that Sharjah Insurance Company P.S.C is trading at a P/E lower than the market. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Key Takeaway

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Sharjah Insurance Company P.S.C currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. It appears many are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

There are also other vital risk factors to consider before investing and we've discovered 2 warning signs for Sharjah Insurance Company P.S.C that you should be aware of.

You might be able to find a better investment than Sharjah Insurance Company P.S.C. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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

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.