Abu Dhabi National Takaful Company PSC (ADX:TKFL) Held Back By Insufficient Growth Even After Shares Climb 31%

Abu Dhabi National Takaful Company PSC (ADX:TKFL) shares have had a really impressive month, gaining 31% after a shaky period beforehand. The last 30 days bring the annual gain to a very sharp 30%.

In spite of the firm bounce in price, given about half the companies in the United Arab Emirates have price-to-earnings ratios (or "P/E's") above 14x, you may still consider Abu Dhabi National Takaful Company PSC as an attractive investment with its 7.4x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

For instance, Abu Dhabi National Takaful Company PSC's receding earnings in recent times would have to be some food for thought. One possibility is that the P/E is low because investors think the company won't do enough to avoid underperforming the broader market in the near future. 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 Abu Dhabi National Takaful Company PSC

Although there are no analyst estimates available for Abu Dhabi National Takaful Company PSC, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

How Is Abu Dhabi National Takaful Company PSC's Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like Abu Dhabi National Takaful Company PSC's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 19% decrease to the company's bottom line. This means it has also seen a slide in earnings over the longer-term as EPS is down 5.6% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Comparing that to the market, which is predicted to deliver 8.6% growth in the next 12 months, the company's downward momentum based on recent medium-term earnings results is a sobering picture.

In light of this, it's understandable that Abu Dhabi National Takaful Company PSC's P/E would sit below the majority of other companies. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. Even just maintaining these prices could be difficult to achieve as recent earnings trends are already weighing down the shares.

The Bottom Line On Abu Dhabi National Takaful Company PSC's P/E

The latest share price surge wasn't enough to lift Abu Dhabi National Takaful Company PSC's P/E close to the market median. 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 Abu Dhabi National Takaful Company PSC maintains its low P/E on the weakness of its sliding earnings over the medium-term, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless the recent medium-term conditions improve, they will continue to form a barrier for the share price around these levels.

You need to take note of risks, for example - Abu Dhabi National Takaful Company PSC has 2 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

Of course, you might also be able to find a better stock than Abu Dhabi National Takaful Company PSC. 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.