Market Participants Recognise Abu Dhabi National Company for Building Materials PJSC's (ADX:BILDCO) Revenues Pushing Shares 31% Higher

Despite an already strong run, Abu Dhabi National Company for Building Materials PJSC (ADX:BILDCO) shares have been powering on, with a gain of 31% in the last thirty days. The annual gain comes to 252% following the latest surge, making investors sit up and take notice.

Following the firm bounce in price, given around half the companies in the United Arab Emirates' Basic Materials industry have price-to-sales ratios (or "P/S") below 2.3x, you may consider Abu Dhabi National Company for Building Materials PJSC as a stock to avoid entirely with its 4.6x P/S ratio. However, the P/S might be quite high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Abu Dhabi National Company for Building Materials PJSC

What Does Abu Dhabi National Company for Building Materials PJSC's P/S Mean For Shareholders?

Recent times have been quite advantageous for Abu Dhabi National Company for Building Materials PJSC as its revenue has been rising very briskly. It seems that many are expecting the strong revenue performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Abu Dhabi National Company for Building Materials PJSC will help you shine a light on its historical performance.

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

The only time you'd be truly comfortable seeing a P/S as steep as Abu Dhabi National Company for Building Materials PJSC's is when the company's growth is on track to outshine the industry decidedly.

Taking a look back first, we see that the company grew revenue by an impressive 54% last year. The latest three year period has also seen an excellent 54% overall rise in revenue, aided by its short-term performance. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Comparing that to the industry, which is only predicted to deliver 3.6% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

With this in consideration, it's not hard to understand why Abu Dhabi National Company for Building Materials PJSC's P/S is high relative to its industry peers. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

The Final Word

Abu Dhabi National Company for Building Materials PJSC's P/S has grown nicely over the last month thanks to a handy boost in the share price. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

As we suspected, our examination of Abu Dhabi National Company for Building Materials PJSC revealed its three-year revenue trends are contributing to its high P/S, given they look better than current industry expectations. In the eyes of shareholders, the probability of a continued growth trajectory is great enough to prevent the P/S from pulling back. If recent medium-term revenue trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Abu Dhabi National Company for Building Materials PJSC (at least 1 which is significant), and understanding these should be part of your investment process.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, 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.