Dr. Sulaiman Al Habib Medical Services Group Company's (TADAWUL:4013) P/E Still Appears To Be Reasonable

With a price-to-earnings (or "P/E") ratio of 40.8x Dr. Sulaiman Al Habib Medical Services Group Company (TADAWUL:4013) may be sending very bearish signals at the moment, given that almost half of all companies in Saudi Arabia have P/E ratios under 22x and even P/E's lower than 15x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

There hasn't been much to differentiate Dr. Sulaiman Al Habib Medical Services Group's and the market's earnings growth lately. One possibility is that the P/E is high because investors think this modest earnings performance will accelerate. If not, then existing shareholders may be a little nervous about the viability of the share price.

View our latest analysis for Dr. Sulaiman Al Habib Medical Services Group

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Dr. Sulaiman Al Habib Medical Services Group.

How Is Dr. Sulaiman Al Habib Medical Services Group's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as steep as Dr. Sulaiman Al Habib Medical Services Group's is when the company's growth is on track to outshine the market decidedly.

Retrospectively, the last year delivered a decent 13% gain to the company's bottom line. Pleasingly, EPS has also lifted 68% in aggregate from three years ago, partly thanks to the last 12 months of growth. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 16% each year as estimated by the eleven analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 12% each year, which is noticeably less attractive.

In light of this, it's understandable that Dr. Sulaiman Al Habib Medical Services Group's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Dr. Sulaiman Al Habib Medical Services Group's P/E

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Dr. Sulaiman Al Habib Medical Services Group's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

Before you take the next step, you should know about the 2 warning signs for Dr. Sulaiman Al Habib Medical Services Group (1 makes us a bit uncomfortable!) that we have uncovered.

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 low P/E).

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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.