Stock Analysis

Subdued Growth No Barrier To The Mediterranean and Gulf Cooperative Insurance and Reinsurance Company's (TADAWUL:8030) Price

SASE:8030
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When close to half the companies in Saudi Arabia have price-to-earnings ratios (or "P/E's") below 29x, you may consider The Mediterranean and Gulf Cooperative Insurance and Reinsurance Company (TADAWUL:8030) as a stock to avoid entirely with its 59.9x 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.

As an illustration, earnings have deteriorated at Mediterranean and Gulf Cooperative Insurance and Reinsurance over the last year, which is not ideal at all. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/E from collapsing. If not, then existing shareholders may be quite nervous about the viability of the share price.

Check out our latest analysis for Mediterranean and Gulf Cooperative Insurance and Reinsurance

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SASE:8030 Price Based on Past Earnings November 5th 2021
Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Mediterranean and Gulf Cooperative Insurance and Reinsurance will help you shine a light on its historical performance.

How Is Mediterranean and Gulf Cooperative Insurance and Reinsurance's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as steep as Mediterranean and Gulf Cooperative Insurance and Reinsurance's is when the company's growth is on track to outshine the market decidedly.

Retrospectively, the last year delivered a frustrating 9.2% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 86% in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

In contrast to the company, the rest of the market is expected to grow by 26% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

In light of this, it's alarming that Mediterranean and Gulf Cooperative Insurance and Reinsurance's P/E sits above the majority of other companies. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the recent negative growth rates.

What We Can Learn From Mediterranean and Gulf Cooperative Insurance and Reinsurance'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.

We've established that Mediterranean and Gulf Cooperative Insurance and Reinsurance currently trades on a much higher than expected P/E since its recent earnings have been in decline over the medium-term. When we see earnings heading backwards and underperforming the market forecasts, we suspect the share price is at risk of declining, sending the high P/E lower. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.

You should always think about risks. Case in point, we've spotted 2 warning signs for Mediterranean and Gulf Cooperative Insurance and Reinsurance you should be aware of, and 1 of them is concerning.

If these risks are making you reconsider your opinion on Mediterranean and Gulf Cooperative Insurance and Reinsurance, explore our interactive list of high quality stocks to get an idea of what else is out there.

Valuation is complex, but we're helping make it simple.

Find out whether Mediterranean and Gulf Cooperative Insurance and Reinsurance is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.

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