Bupa Arabia for Cooperative Insurance Company's (TADAWUL:8210) price-to-earnings (or "P/E") ratio of 21.6x might make it look like a sell right now compared to the market in Saudi Arabia, where around half of the companies have P/E ratios below 18x and even P/E's below 12x are quite common. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

While the market has experienced earnings growth lately, Bupa Arabia for Cooperative Insurance's earnings have gone into reverse gear, which is not great. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

How Is Bupa Arabia for Cooperative Insurance's Growth Trending?

In order to justify its P/E ratio, Bupa Arabia for Cooperative Insurance would need to produce impressive growth in excess of the market.

Retrospectively, the last year delivered a frustrating 12% decrease to the company's bottom line. Still, the latest three year period has seen an excellent 59% overall rise in EPS, in spite of its unsatisfying short-term performance. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Looking ahead now, EPS is anticipated to climb by 14% per year during the coming three years according to the four analysts following the company. That's shaping up to be materially higher than the 11% per year growth forecast for the broader market.

In light of this, it's understandable that Bupa Arabia for Cooperative Insurance'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 Bupa Arabia for Cooperative Insurance's P/E?

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Bupa Arabia for Cooperative Insurance maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

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.

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.