Market Still Lacking Some Conviction On Sharjah Cement and Industrial Development Co. (PJSC) (ADX:SCIDC)

When close to half the companies operating in the Basic Materials industry in the United Arab Emirates have price-to-sales ratios (or "P/S") above 1.6x, you may consider Sharjah Cement and Industrial Development Co. (PJSC) (ADX:SCIDC) as an attractive investment with its 0.6x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Sharjah Cement and Industrial Development (PJSC)

What Does Sharjah Cement and Industrial Development (PJSC)'s Recent Performance Look Like?

Sharjah Cement and Industrial Development (PJSC) has been doing a decent job lately as it's been growing revenue at a reasonable pace. Perhaps the market believes the recent revenue performance might fall short of industry figures in the near future, leading to a reduced P/S. Those who are bullish on Sharjah Cement and Industrial Development (PJSC) will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Sharjah Cement and Industrial Development (PJSC)'s earnings, revenue and cash flow.

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

In order to justify its P/S ratio, Sharjah Cement and Industrial Development (PJSC) would need to produce sluggish growth that's trailing the industry.

If we review the last year of revenue growth, the company posted a worthy increase of 7.3%. This was backed up an excellent period prior to see revenue up by 33% in total over the last three years. Therefore, it's fair to say the revenue growth recently has been superb for the company.

This is in contrast to the rest of the industry, which is expected to grow by 0.7% over the next year, materially lower than the company's recent medium-term annualised growth rates.

In light of this, it's peculiar that Sharjah Cement and Industrial Development (PJSC)'s P/S sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Key Takeaway

It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We're very surprised to see Sharjah Cement and Industrial Development (PJSC) currently trading on a much lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. When we see strong revenue with faster-than-industry growth, we assume there are some significant underlying risks to the company's ability to make money which is applying downwards pressure on the P/S ratio. While recent revenue trends over the past medium-term suggest that the risk of a price decline is low, investors appear to perceive a likelihood of revenue fluctuations in the future.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Sharjah Cement and Industrial Development (PJSC) (at least 1 which is significant), and understanding these should be part of your investment process.

If these risks are making you reconsider your opinion on Sharjah Cement and Industrial Development (PJSC), explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.