Why We're Not Concerned About Dar Al Arkan Real Estate Development Company's (TADAWUL:4300) Share Price

When close to half the companies in Saudi Arabia have price-to-earnings ratios (or "P/E's") below 23x, you may consider Dar Al Arkan Real Estate Development Company (TADAWUL:4300) as a stock to potentially avoid with its 25.9x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.

Recent times have been advantageous for Dar Al Arkan Real Estate Development as its earnings have been rising faster than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.

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.

Does Growth Match The High P/E?

Dar Al Arkan Real Estate Development's P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 39% last year. Pleasingly, EPS has also lifted 614% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Shifting to the future, estimates from the three analysts covering the company suggest earnings should grow by 66% over the next year. With the market only predicted to deliver 16%, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Dar Al Arkan Real Estate Development'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 Dar Al Arkan Real Estate Development's 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.

As we suspected, our examination of Dar Al Arkan Real Estate Development's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. 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. Take a look at our free balance sheet analysis for Dar Al Arkan Real Estate Development with six simple checks on some of these key factors.

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.