Market Participants Recognise Astra Industrial Group Company's (TADAWUL:1212) Earnings Pushing Shares 28% Higher

Astra Industrial Group Company (TADAWUL:1212) shares have continued their recent momentum with a 28% gain in the last month alone. The annual gain comes to 187% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, given around half the companies in Saudi Arabia have price-to-earnings ratios (or "P/E's") below 27x, you may consider Astra Industrial Group as a stock to potentially avoid with its 30.7x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

With earnings growth that's exceedingly strong of late, Astra Industrial Group has been doing very well. It seems that many are expecting the strong earnings 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.

View our latest analysis for Astra Industrial Group

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Astra Industrial Group will help you shine a light on its historical performance.

How Is Astra Industrial Group's Growth Trending?

In order to justify its P/E ratio, Astra Industrial Group would need to produce impressive growth in excess of the market.

If we review the last year of earnings growth, the company posted a terrific increase of 66%. Pleasingly, EPS has also lifted 350% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

This is in contrast to the rest of the market, which is expected to grow by 16% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we can see why Astra Industrial Group is trading at such a high P/E compared to the market. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse.

The Final Word

Astra Industrial Group shares have received a push in the right direction, but its P/E is elevated too. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Astra Industrial Group maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Astra Industrial Group, and understanding these should be part of your investment process.

You might be able to find a better investment than Astra Industrial Group. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.