When close to half the companies in the United Arab Emirates have price-to-earnings ratios (or "P/E's") below 13x, you may consider Al Yah Satellite Communication Company PJSC (ADX:YAHSAT) as a stock to avoid entirely with its 29.1x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.
Al Yah Satellite Communication Company PJSC could be doing better as it's been growing earnings less than most other companies lately. It might be that many expect the uninspiring earnings performance to recover significantly, which has kept the P/E from collapsing. If not, then existing shareholders may be very nervous about the viability of the share price.
Our analysis indicates that YAHSAT is potentially undervalued!If you'd like to see what analysts are forecasting going forward, you should check out our free report on Al Yah Satellite Communication Company PJSC.
How Is Al Yah Satellite Communication Company PJSC's Growth Trending?
The only time you'd be truly comfortable seeing a P/E as steep as Al Yah Satellite Communication Company PJSC's is when the company's growth is on track to outshine the market decidedly.
Taking a look back first, we see that there was hardly any earnings per share growth to speak of for the company over the past year. The lack of growth did nothing to help the company's aggregate three-year performance, which is an unsavory 100% drop in EPS. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.
Turning to the outlook, the next three years should generate growth of 30% per annum as estimated by the five analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 5.2% per year, which is noticeably less attractive.
With this information, we can see why Al Yah Satellite Communication Company PJSC is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.
The Final Word
Using the price-to-earnings 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 Al Yah Satellite Communication Company PJSC's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.
Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Al Yah Satellite Communication Company PJSC that you should be aware of.
Of course, you might also be able to find a better stock than Al Yah Satellite Communication Company PJSC. So you may wish to see this free collection of other companies that sit on P/E's below 20x and have grown earnings strongly.
Valuation is complex, but we're helping make it simple.
Find out whether Al Yah Satellite Communication Company PJSC is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.View the Free Analysis
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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.