Takaful Emarat - Insurance (PSC) (DFM:TAKAFUL-EM) Looks Inexpensive After Falling 26% But Perhaps Not Attractive Enough

The Takaful Emarat - Insurance (PSC) (DFM:TAKAFUL-EM) share price has softened a substantial 26% over the previous 30 days, handing back much of the gains the stock has made lately. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 19% in that time.

Following the heavy fall in price, when close to half the companies operating in the United Arab Emirates' Insurance industry have price-to-sales ratios (or "P/S") above 1.2x, you may consider Takaful Emarat - Insurance (PSC) as an enticing stock to check out with its 0.4x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

See our latest analysis for Takaful Emarat - Insurance (PSC)

How Has Takaful Emarat - Insurance (PSC) Performed Recently?

For instance, Takaful Emarat - Insurance (PSC)'s receding revenue in recent times would have to be some food for thought. It might be that many expect the disappointing revenue performance to continue or accelerate, which has repressed the P/S. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

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 Takaful Emarat - Insurance (PSC)'s earnings, revenue and cash flow.

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

There's an inherent assumption that a company should underperform the industry for P/S ratios like Takaful Emarat - Insurance (PSC)'s to be considered reasonable.

Retrospectively, the last year delivered a frustrating 48% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 51% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Weighing that medium-term revenue trajectory against the broader industry's one-year forecast for a contraction of 0.7% shows the industry is more attractive on an annualised basis regardless.

With this in consideration, it's no surprise that Takaful Emarat - Insurance (PSC)'s P/S falls short of its industry peers. However, when revenue shrink rapidly P/S often shrinks too, which could set up shareholders for future disappointment regardless. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth, which would be difficult to do with the current industry outlook.

The Bottom Line On Takaful Emarat - Insurance (PSC)'s P/S

Takaful Emarat - Insurance (PSC)'s P/S has taken a dip along with its share price. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

It's clear that Takaful Emarat - Insurance (PSC) trades at a low P/S relative to the wider industry on the weakness of its recent three-year revenue being even worse than the forecasts for a struggling industry, as expected. At this stage investors feel the potential for an improvement in revenue isn't great enough to justify a higher P/S ratio. However, we're still cautious about the company's ability to prevent an acceleration of its recent medium-term course and resist even greater pain to its business from the broader industry turmoil. In the meantime, unless the company's relative performance improves, the share price will hit a barrier around these levels.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Takaful Emarat - Insurance (PSC) (of which 2 make us uncomfortable!) you should know about.

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.