Subdued Growth No Barrier To Dr. Sulaiman Al Habib Medical Services Group Company's (TADAWUL:4013) Price

When close to half the companies in Saudi Arabia have price-to-earnings ratios (or "P/E's") below 27x, you may consider Dr. Sulaiman Al Habib Medical Services Group Company (TADAWUL:4013) as a stock to avoid entirely with its 54.2x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

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. If not, then existing shareholders might be a little nervous about the viability of the share price.

View 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.

Is There Enough Growth For Dr. Sulaiman Al Habib Medical Services Group?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Dr. Sulaiman Al Habib Medical Services Group's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 24% last year. Pleasingly, EPS has also lifted 94% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Shifting to the future, estimates from the seven analysts covering the company suggest earnings should grow by 16% per annum over the next three years. With the market predicted to deliver 16% growth each year, the company is positioned for a comparable earnings result.

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. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. Although, additional gains will be difficult to achieve as this level of earnings growth is likely to weigh down the share price eventually.

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.

We've established that Dr. Sulaiman Al Habib Medical Services Group currently trades on a higher than expected P/E since its forecast growth is only in line with the wider market. 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.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Dr. Sulaiman Al Habib Medical Services Group you should know about.

Of course, you might also be able to find a better stock than Dr. Sulaiman Al Habib Medical Services Group. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.