Revenues Tell The Story For Abu Dhabi National Company for Building Materials PJSC (ADX:BILDCO) As Its Stock Soars 33%

The Abu Dhabi National Company for Building Materials PJSC (ADX:BILDCO) share price has done very well over the last month, posting an excellent gain of 33%. The annual gain comes to 272% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, given around half the companies in the United Arab Emirates' Basic Materials industry have price-to-sales ratios (or "P/S") below 2.1x, you may consider Abu Dhabi National Company for Building Materials PJSC as a stock to avoid entirely with its 6.3x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

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Check out 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?

As an illustration, revenue has deteriorated at Abu Dhabi National Company for Building Materials PJSC over the last year, which is not ideal at all. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/S from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Although there are no analyst estimates available for Abu Dhabi National Company for Building Materials PJSC, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Enough Revenue Growth Forecasted For Abu Dhabi National Company for Building Materials PJSC?

Abu Dhabi National Company for Building Materials PJSC's P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 3.1%. Even so, admirably revenue has lifted 64% in aggregate from three years ago, notwithstanding the last 12 months. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Comparing that to the industry, which is only predicted to deliver 2.0% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

With this information, we can see why Abu Dhabi National Company for Building Materials PJSC is trading at such a high P/S compared to the industry. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

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

The strong share price surge has lead to Abu Dhabi National Company for Building Materials PJSC's P/S soaring as well. Using the price-to-sales 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.

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. Right now shareholders are comfortable with the P/S as they are quite confident revenue aren't under threat. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

And what about other risks? Every company has them, and we've spotted 2 warning signs for Abu Dhabi National Company for Building Materials PJSC you should know about.

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.