Capital Market
These stocks in UAE and Saudi Arabia still trade above 5-year PE despite market fall 5
Marmore Team
18 April 2016
According to an analysis by Marmore MENA Intelligence (www.marmoremena.com), a research house specialized in MENA economies and business issues with the focus on providing actionable solutions, out of a total of 121 UAE-listed stocks (comprising of ADX’s 65, Nasdaq Dubai&rsquo’s 5 and DFM’s 52), 12 stocks are trading at multiples that are higher than their 5-year average PE multiples, which includes stocks such as Etisalat, du, Aramex, Commercial Bank of Dubai and RAK ceramics, among others. Likewise, out of 173 Saudi Tadawul-listed stocks, 28 of them still trade above their 5-year average PE multiples. “In most cases, this has been due to decline in EPS rather than an increase in price, or a combination of both. In fact, almost all of the companies that have witnessed current PE greater than their five year average PE, have current EPS that is less than their five-year average EPS. Another crucial point is that there are no common companies in both these lists; no company with PE > 5-year average PE, is present in the EPS > 5-year EPS, or vice versa,” M.R. Raghu, Managing Director, Marmore MENA Intelligence, told Wealth Monitor.
The report, shared exclusively with Wealth Monitor, includes only primary listings on both the exchanges (meaning stocks that are listed primarily in other stock exchanges and have a secondary listing on UAE or Tadawul have not been included). The report also shows that earnings of 8 companies in Tadawul are above their 5-year average, which includes names like Jarir Marketing, Alahli Takaful and National Agriculture Marketing, among others. In the case of UAE however no company had current EPS that is higher than its 5- year average. Whether the higher valuations of these stocks in UAE and KSA are justified or not is a subjective matter, what’s striking is that these stocks have sailed against the tide at a time when Gulf equity markets have had to face the brunt of low crude oil prices.
The terms ‘earnings multiple’, ‘Price to Earnings ratio’, or PE ratio mean the same and is perhaps the most frequently used benchmark for evaluating the outlook of a stock. To interpret it simply, if a stock trades at 12 times its earnings, your share, as an investor and shareholder, of the profits for each of the stock you own is equal to 1/12th of the stock’s value. However, analysts reckon, the PE ratio shouldn’t be viewed in isolation and shouldn’t be the sole criterion for buying or selling a stock, as various other factors should also be factored into. The price relative to earnings is impacted by the growth rate of a company. A company with a high growth rate will cause a high price of its stock, and naturally a high P/E ratio. This means high growth companies have high P/E multiple while low growth rate companies have low P/E ratios.
The report, shared exclusively with Wealth Monitor, includes only primary listings on both the exchanges (meaning stocks that are listed primarily in other stock exchanges and have a secondary listing on UAE or Tadawul have not been included). The report also shows that earnings of 8 companies in Tadawul are above their 5-year average, which includes names like Jarir Marketing, Alahli Takaful and National Agriculture Marketing, among others. In the case of UAE however no company had current EPS that is higher than its 5- year average. Whether the higher valuations of these stocks in UAE and KSA are justified or not is a subjective matter, what’s striking is that these stocks have sailed against the tide at a time when Gulf equity markets have had to face the brunt of low crude oil prices.
The terms ‘earnings multiple’, ‘Price to Earnings ratio’, or PE ratio mean the same and is perhaps the most frequently used benchmark for evaluating the outlook of a stock. To interpret it simply, if a stock trades at 12 times its earnings, your share, as an investor and shareholder, of the profits for each of the stock you own is equal to 1/12th of the stock’s value. However, analysts reckon, the PE ratio shouldn’t be viewed in isolation and shouldn’t be the sole criterion for buying or selling a stock, as various other factors should also be factored into. The price relative to earnings is impacted by the growth rate of a company. A company with a high growth rate will cause a high price of its stock, and naturally a high P/E ratio. This means high growth companies have high P/E multiple while low growth rate companies have low P/E ratios.
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