Dr. Sulaiman Al Habib Medical Services Group Company's (TADAWUL:4013) Price Is Out Of Tune With Earnings

With a price-to-earnings (or "P/E") ratio of 51.9x 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 25x and even P/E's lower than 17x 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.

Recent times have been advantageous for Dr. Sulaiman Al Habib Medical Services Group as its earnings have been rising faster than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

Keen to find out how analysts think Dr. Sulaiman Al Habib Medical Services Group's future stacks up against the industry? In that case, our free report is a great place to start.

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

Dr. Sulaiman Al Habib Medical Services Group's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Retrospectively, the last year delivered an exceptional 23% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 95% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 16% each year as estimated by the nine analysts watching the company. That's shaping up to be similar to the 17% each year growth forecast for the broader market.

With this information, we find it interesting that Dr. Sulaiman Al Habib Medical Services Group is trading at a high P/E compared to the market. It seems most investors are ignoring the fairly average growth expectations and are willing to pay up for exposure to the stock. Although, additional gains will be difficult to achieve as this level of earnings growth is likely to weigh down the share price eventually.

The Final Word

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

Our examination of Dr. Sulaiman Al Habib Medical Services Group's analyst forecasts revealed that its market-matching earnings outlook isn't impacting its high P/E as much as we would have predicted. When we see an average earnings outlook with market-like growth, we suspect the share price is at risk of declining, sending the high P/E lower. Unless these conditions improve, it's challenging to accept these prices as being reasonable.

You should always think about risks. Case in point, we've spotted 1 warning sign for Dr. Sulaiman Al Habib Medical Services Group you should be aware of.

If you're unsure about the strength of Dr. Sulaiman Al Habib Medical Services Group's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.