Investors Continue Waiting On Sidelines For Al-Etihad Cooperative Insurance Company (TADAWUL:8170)

With a price-to-earnings (or "P/E") ratio of 18x Al-Etihad Cooperative Insurance Company (TADAWUL:8170) may be sending bullish signals at the moment, given that almost half of all companies in Saudi Arabia have P/E ratios greater than 21x and even P/E's higher than 36x 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 limited.

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As an illustration, earnings have deteriorated at Al-Etihad Cooperative Insurance over the last year, which is not ideal at all. One possibility is that the P/E is low because investors think the company won't do enough to avoid underperforming the broader market in the near future. However, if this doesn't eventuate then existing shareholders may be feeling optimistic about the future direction of the share price.

View our latest analysis for Al-Etihad Cooperative Insurance

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Al-Etihad Cooperative Insurance's earnings, revenue and cash flow.

How Is Al-Etihad Cooperative Insurance's Growth Trending?

There's an inherent assumption that a company should underperform the market for P/E ratios like Al-Etihad Cooperative Insurance's to be considered reasonable.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 58%. Even so, admirably EPS has lifted 44% in aggregate from three years ago, notwithstanding the last 12 months. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Comparing that to the market, which is predicted to deliver 12% growth in the next 12 months, the company's momentum is pretty similar based on recent medium-term annualised earnings results.

In light of this, it's peculiar that Al-Etihad Cooperative Insurance's P/E sits below the majority of other companies. It may be that most investors are not convinced the company can maintain recent growth rates.

The Bottom Line On Al-Etihad Cooperative Insurance's P/E

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Al-Etihad Cooperative Insurance currently trades on a lower than expected P/E since its recent three-year growth is in line with the wider market forecast. When we see average earnings with market-like growth, we assume potential risks are what might be placing pressure on the P/E ratio. At least the risk of a price drop looks to be subdued if recent medium-term earnings trends continue, but investors seem to think future earnings could see some volatility.

It is also worth noting that we have found 3 warning signs for Al-Etihad Cooperative Insurance (1 can't be ignored!) that you need to take into consideration.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.