Investors Appear Satisfied With Al Rajhi Company for Cooperative Insurance's (TADAWUL:8230) Prospects

Al Rajhi Company for Cooperative Insurance's (TADAWUL:8230) price-to-earnings (or "P/E") ratio of 44.3x might make it look like a strong sell right now compared to the market in Saudi Arabia, where around half of the companies have P/E ratios below 24x and even P/E's below 16x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Recent times have been advantageous for Al Rajhi Company for Cooperative Insurance as its earnings have been rising faster than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Al Rajhi Company for Cooperative Insurance

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Al Rajhi Company for Cooperative Insurance.

Does Growth Match The High P/E?

The only time you'd be truly comfortable seeing a P/E as steep as Al Rajhi Company for Cooperative Insurance's is when the company's growth is on track to outshine the market decidedly.

If we review the last year of earnings growth, the company posted a terrific increase of 70%. The latest three year period has also seen an excellent 118% overall rise in EPS, aided 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 generate growth of 31% as estimated by the one analyst watching the company. That's shaping up to be materially higher than the 17% growth forecast for the broader market.

In light of this, it's understandable that Al Rajhi Company for Cooperative Insurance's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

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 Rajhi Company for Cooperative Insurance maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for Al Rajhi Company for Cooperative Insurance with six simple checks will allow you to discover any risks that could be an issue.

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.