With Etihad Etisalat Company (TADAWUL:7020) It Looks Like You'll Get What You Pay For

When close to half the companies in Saudi Arabia have price-to-earnings ratios (or "P/E's") below 24x, you may consider Etihad Etisalat Company (TADAWUL:7020) as a stock to avoid entirely with its 54.9x P/E ratio. 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 Etihad Etisalat 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.

See our latest analysis for Etihad Etisalat

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Etihad Etisalat.

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

In order to justify its P/E ratio, Etihad Etisalat would need to produce outstanding growth well in excess of the market.

Retrospectively, the last year delivered an exceptional 76% gain to the company's bottom line. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 112% during the coming year according to the nine analysts following the company. With the market only predicted to deliver 3.6%, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Etihad Etisalat'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 Bottom Line On Etihad Etisalat'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 Etihad Etisalat'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.

Having said that, be aware Etihad Etisalat is showing 1 warning sign in our investment analysis, you should know about.

You might be able to find a better investment than Etihad Etisalat. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a P/E below 20x (but have proven they can grow earnings).

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This article by Simply Wall St is general in nature. 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.
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