National General Insurance Co. (P.J.S.C.)'s (DFM:NGI) Shares Not Telling The Full Story

National General Insurance Co. (P.J.S.C.)'s (DFM:NGI) price-to-earnings (or "P/E") ratio of 6.1x might make it look like a strong buy right now compared to the market in the United Arab Emirates, where around half of the companies have P/E ratios above 13x and even P/E's above 21x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

National General Insurance (P.J.S.C.) certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It might be that many expect the strong earnings performance to degrade substantially, 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 National General Insurance (P.J.S.C.)

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

How Is National General Insurance (P.J.S.C.)'s Growth Trending?

In order to justify its P/E ratio, National General Insurance (P.J.S.C.) would need to produce anemic growth that's substantially trailing the market.

If we review the last year of earnings growth, the company posted a terrific increase of 74%. The strong recent performance means it was also able to grow EPS by 67% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Comparing that to the market, which is only predicted to deliver 6.7% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

In light of this, it's peculiar that National General Insurance (P.J.S.C.)'s P/E sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Bottom Line On National General Insurance (P.J.S.C.)'s P/E

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 National General Insurance (P.J.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. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. 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.

It is also worth noting that we have found 3 warning signs for National General Insurance (P.J.S.C.) (2 make us uncomfortable!) that you need to take into consideration.

If these risks are making you reconsider your opinion on National General Insurance (P.J.S.C.), explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.