Islamic Holding Group (Q.P.S.C)'s (DSM:IHGS) 33% Jump Shows Its Popularity With Investors

Islamic Holding Group (Q.P.S.C) (DSM:IHGS) shareholders would be excited to see that the share price has had a great month, posting a 33% gain and recovering from prior weakness. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 2.5% in the last twelve months.

After such a large jump in price, given close to half the companies in Qatar have price-to-earnings ratios (or "P/E's") below 18x, you may consider Islamic Holding Group (Q.P.S.C) as a stock to avoid entirely with its 48.5x 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.

For example, consider that Islamic Holding Group (Q.P.S.C)'s financial performance has been pretty ordinary lately as earnings growth is non-existent. It might be that many are expecting an improvement to the uninspiring earnings performance over the coming period, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Islamic Holding Group (Q.P.S.C)

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

How Is Islamic Holding Group (Q.P.S.C)'s Growth Trending?

The only time you'd be truly comfortable seeing a P/E as steep as Islamic Holding Group (Q.P.S.C)'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. Still, the latest three year period has seen an excellent 1,354% overall rise in EPS, in spite of its uninspiring short-term performance. So we can start by confirming that the company has done a great job of growing earnings over that time.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 17% shows it's noticeably more attractive on an annualised basis.

With this information, we can see why Islamic Holding Group (Q.P.S.C) is trading at such a high P/E compared to the market. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse.

The Key Takeaway

The strong share price surge has got Islamic Holding Group (Q.P.S.C)'s P/E rushing to great heights as well. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Islamic Holding Group (Q.P.S.C) maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

Having said that, be aware Islamic Holding Group (Q.P.S.C) is showing 3 warning signs in our investment analysis, you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and a P/E ratio below 20x).

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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.