The Saudi Arabian Amiantit Company's (TADAWUL:2160) Shares Leap 32% Yet They're Still Not Telling The Full Story

The The Saudi Arabian Amiantit Company (TADAWUL:2160) share price has done very well over the last month, posting an excellent gain of 32%. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 31% over that time.

In spite of the firm bounce in price, it's still not a stretch to say that Saudi Arabian Amiantit's price-to-sales (or "P/S") ratio of 1.9x right now seems quite "middle-of-the-road" compared to the Machinery industry in Saudi Arabia, where the median P/S ratio is around 1.6x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

View our latest analysis for Saudi Arabian Amiantit

What Does Saudi Arabian Amiantit's P/S Mean For Shareholders?

Saudi Arabian Amiantit has been doing a good job lately as it's been growing revenue at a solid pace. It might be that many expect the respectable revenue performance to wane, which has kept the P/S from rising. If that doesn't eventuate, then existing shareholders probably aren't too pessimistic about the future direction of the share price.

Although there are no analyst estimates available for Saudi Arabian Amiantit, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

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

In order to justify its P/S ratio, Saudi Arabian Amiantit would need to produce growth that's similar to the industry.

Taking a look back first, we see that the company grew revenue by an impressive 19% last year. The strong recent performance means it was also able to grow revenue by 78% in total over the last three years. 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 17% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

With this information, we find it interesting that Saudi Arabian Amiantit is trading at a fairly similar P/S compared to the industry. Apparently some shareholders believe the recent performance is at its limits and have been accepting lower selling prices.

The Key Takeaway

Its shares have lifted substantially and now Saudi Arabian Amiantit's P/S is back within range of the industry median. 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.

We've established that Saudi Arabian Amiantit currently trades on a lower than expected P/S since its recent three-year growth is higher than the wider industry forecast. There could be some unobserved threats to revenue preventing the P/S ratio from matching this positive performance. It appears some are indeed anticipating revenue instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

You need to take note of risks, for example - Saudi Arabian Amiantit has 3 warning signs (and 2 which are concerning) we think you should know about.

If these risks are making you reconsider your opinion on Saudi Arabian Amiantit, explore our interactive list of high quality stocks to get an idea of what else is out there.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.