Dar Al Arkan Real Estate Development Company's (TADAWUL:4300) P/E Still Appears To Be Reasonable

With a price-to-earnings (or "P/E") ratio of 30.9x Dar Al Arkan Real Estate Development Company (TADAWUL:4300) may be sending bearish signals at the moment, given that almost half of all companies in Saudi Arabia have P/E ratios under 22x and even P/E's lower than 15x are not unusual. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

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Dar Al Arkan Real Estate Development certainly has been doing a good job lately as it's been growing earnings more 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 Dar Al Arkan Real Estate Development

Keen to find out how analysts think Dar Al Arkan Real Estate Development's future stacks up against the industry? In that case, our free report is a great place to start.

What Are Growth Metrics Telling Us About The High P/E?

The only time you'd be truly comfortable seeing a P/E as high as Dar Al Arkan Real Estate Development's is when the company's growth is on track to outshine the market.

If we review the last year of earnings growth, the company posted a terrific increase of 29%. The latest three year period has also seen an excellent 495% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 22% per annum as estimated by the three analysts watching the company. With the market only predicted to deliver 13% per year, the company is positioned for a stronger earnings result.

With this information, we can see why Dar Al Arkan Real Estate Development is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Dar Al Arkan Real Estate Development 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. Unless these conditions change, they will continue to provide strong support to the share price.

A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for Dar Al Arkan Real Estate Development with six simple checks will allow you to discover any risks that could be an issue.

It's important to make sure you look for a great company, not just the first idea you come across. So take a peek at this free list of interesting companies with strong recent earnings growth (and 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.