Stock Analysis

Subdued Growth No Barrier To Al Rajhi Company for Cooperative Insurance (TADAWUL:8230) With Shares Advancing 28%

SASE:8230
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Al Rajhi Company for Cooperative Insurance (TADAWUL:8230) shares have continued their recent momentum with a 28% gain in the last month alone. The last month tops off a massive increase of 230% in the last year.

After such a large jump in price, Al Rajhi Company for Cooperative Insurance may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 41.8x, since 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. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's exceedingly strong of late, Al Rajhi Company for Cooperative Insurance has been doing very well. The P/E is probably high because investors think this strong earnings growth will be enough to outperform the broader market in the near future. If not, then existing shareholders might be a little nervous about the viability of the share price.

Check out our latest analysis for Al Rajhi Company for Cooperative Insurance

pe-multiple-vs-industry
SASE:8230 Price to Earnings Ratio vs Industry May 3rd 2024
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 Rajhi Company for Cooperative Insurance's earnings, revenue and cash flow.

Is There Enough Growth For Al Rajhi Company for Cooperative Insurance?

Al Rajhi Company for Cooperative Insurance's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

If we review the last year of earnings growth, the company posted a terrific increase of 353%. The strong recent performance means it was also able to grow EPS by 44% in total over the last three years. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Comparing that to the market, which is predicted to deliver 19% growth in the next 12 months, the company's momentum is weaker based on recent medium-term annualised earnings results.

With this information, we find it concerning that Al Rajhi Company for Cooperative Insurance is trading at a P/E higher than the market. Apparently many investors in the company are way more bullish than recent times would indicate and aren't willing to let go of their stock at any price. There's a good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with recent growth rates.

The Key Takeaway

Shares in Al Rajhi Company for Cooperative Insurance have built up some good momentum lately, which has really inflated its P/E. 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.

We've established that Al Rajhi Company for Cooperative Insurance currently trades on a much higher than expected P/E since its recent three-year growth is lower than the wider market forecast. Right now we are increasingly uncomfortable with the high P/E as this earnings performance isn't likely to support such positive sentiment for long. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.

Before you take the next step, you should know about the 1 warning sign for Al Rajhi Company for Cooperative Insurance that we have uncovered.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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

Find out whether Al Rajhi Company for Cooperative Insurance 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.