Investors Still Waiting For A Pull Back In Dr. Soliman Abdel Kader Fakeeh Hospital Company (TADAWUL:4017)

With a price-to-earnings (or "P/E") ratio of 36.8x Dr. Soliman Abdel Kader Fakeeh Hospital Company (TADAWUL:4017) 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. 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.

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Dr. Soliman Abdel Kader Fakeeh Hospital could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. If not, then existing shareholders may be extremely nervous about the viability of the share price.

Check out our latest analysis for Dr. Soliman Abdel Kader Fakeeh Hospital

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What Are Growth Metrics Telling Us About The High P/E?

In order to justify its P/E ratio, Dr. Soliman Abdel Kader Fakeeh Hospital would need to produce outstanding growth well in excess of the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 5.3%. This means it has also seen a slide in earnings over the longer-term as EPS is down 63% in total over the last three years. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Shifting to the future, estimates from the three analysts covering the company suggest earnings should grow by 14% each year over the next three years. Meanwhile, the rest of the market is forecast to only expand by 12% per annum, which is noticeably less attractive.

With this information, we can see why Dr. Soliman Abdel Kader Fakeeh Hospital is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Dr. Soliman Abdel Kader Fakeeh Hospital's P/E?

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.

As we suspected, our examination of Dr. Soliman Abdel Kader Fakeeh Hospital'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. Unless these conditions change, they will continue to provide strong support to the share price.

Many other vital risk factors can be found on the company's balance sheet. Our free balance sheet analysis for Dr. Soliman Abdel Kader Fakeeh Hospital with six simple checks will allow you to discover any risks that could be an issue.

You might be able to find a better investment than Dr. Soliman Abdel Kader Fakeeh Hospital. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.