Investors Appear Satisfied With Bupa Arabia for Cooperative Insurance Company's (TADAWUL:8210) Prospects

With a price-to-earnings (or "P/E") ratio of 36.2x Bupa Arabia for Cooperative Insurance Company (TADAWUL:8210) may be sending bearish signals at the moment, given that almost half of all companies in Saudi Arabia have P/E ratios under 27x and even P/E's lower than 18x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

Recent times haven't been advantageous for Bupa Arabia for Cooperative Insurance as its earnings have been falling quicker than most other companies. It might be that many expect the dismal earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be very nervous about the viability of the share price.

Check out our latest analysis for Bupa Arabia for Cooperative Insurance

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Is There Enough Growth For Bupa Arabia for Cooperative Insurance?

Bupa Arabia for Cooperative Insurance's P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 14%. This means it has also seen a slide in earnings over the longer-term as EPS is down 2.1% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Shifting to the future, estimates from the three analysts covering the company suggest earnings should grow by 31% per year over the next three years. That's shaping up to be materially higher than the 15% per year growth forecast for the broader market.

In light of this, it's understandable that Bupa Arabia for Cooperative Insurance's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From Bupa Arabia for 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.

As we suspected, our examination of Bupa Arabia for Cooperative Insurance'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.

You always need to take note of risks, for example - Bupa Arabia for Cooperative Insurance has 1 warning sign we think you should be aware of.

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

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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.