United International Holding Company (TADAWUL:4083) Could Be Riskier Than It Looks

United International Holding Company's (TADAWUL:4083) price-to-earnings (or "P/E") ratio of 15.7x might make it look like a buy right now compared to the market in Saudi Arabia, where around half of the companies have P/E ratios above 20x and even P/E's above 36x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

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Recent times have been advantageous for United International Holding as its earnings have been rising faster than most other companies. 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.

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How Is United International Holding's Growth Trending?

In order to justify its P/E ratio, United International Holding would need to produce sluggish growth that's trailing the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 23% last year. The strong recent performance means it was also able to grow EPS by 37% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 15% per year as estimated by the three analysts watching the company. With the market only predicted to deliver 12% per year, the company is positioned for a stronger earnings result.

With this information, we find it odd that United International Holding is trading at a P/E lower than the market. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Final Word

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.

Our examination of United International Holding's analyst forecasts revealed that its superior earnings outlook isn't contributing to its P/E anywhere near as much as we would have predicted. There could be some major unobserved threats to earnings preventing the P/E ratio from matching the positive outlook. It appears many are indeed anticipating earnings instability, because these conditions should normally provide a boost to the share price.

And what about other risks? Every company has them, and we've spotted 2 warning signs for United International Holding you should know about.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.