Saudi Reinsurance Company (TADAWUL:8200) Stock Rockets 28% As Investors Are Less Pessimistic Than Expected

Despite an already strong run, Saudi Reinsurance Company (TADAWUL:8200) shares have been powering on, with a gain of 28% in the last thirty days. The last month tops off a massive increase of 113% in the last year.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Saudi Reinsurance's P/E ratio of 28.1x, since the median price-to-earnings (or "P/E") ratio in Saudi Arabia is also close to 26x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Saudi Reinsurance could be doing better as it's been growing earnings less than most other companies lately. It might be that many expect the uninspiring earnings performance to strengthen positively, which has kept the P/E from falling. You'd really hope so, otherwise you're paying a relatively elevated price for a company with this sort of growth profile.

See our latest analysis for Saudi Reinsurance

Keen to find out how analysts think Saudi Reinsurance's future stacks up against the industry? In that case, our free report is a great place to start.

Does Growth Match The P/E?

The only time you'd be comfortable seeing a P/E like Saudi Reinsurance's is when the company's growth is tracking the market closely.

Retrospectively, the last year delivered a decent 7.9% gain to the company's bottom line. The latest three year period has also seen an excellent 106% overall rise in EPS, aided somewhat by its short-term performance. 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 year should bring diminished returns, with earnings decreasing 6.5% as estimated by the lone analyst watching the company. Meanwhile, the broader market is forecast to expand by 19%, which paints a poor picture.

With this information, we find it concerning that Saudi Reinsurance is trading at a fairly similar P/E to the market. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the negative growth outlook.

The Bottom Line On Saudi Reinsurance's P/E

Saudi Reinsurance appears to be back in favour with a solid price jump getting its P/E back in line with most other companies. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

Our examination of Saudi Reinsurance's analyst forecasts revealed that its outlook for shrinking earnings isn't impacting its P/E as much as we would have predicted. Right now we are uncomfortable with the P/E as the predicted future earnings are unlikely to support a more positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

Plus, you should also learn about this 1 warning sign we've spotted with Saudi Reinsurance.

Of course, you might also be able to find a better stock than Saudi Reinsurance. 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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