Subdued Growth No Barrier To Riyadh Cables Group Company's (TADAWUL:4142) Price

There wouldn't be many who think Riyadh Cables Group Company's (TADAWUL:4142) price-to-earnings (or "P/E") ratio of 20.6x is worth a mention when the median P/E in Saudi Arabia is similar at about 21x. Although, it's not wise to simply ignore the P/E without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

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Riyadh Cables Group certainly has been doing a good job lately as it's been growing earnings more than most other companies. It might be that many expect the strong earnings performance to wane, which has kept the P/E from rising. If not, then existing shareholders have reason to be feeling optimistic about the future direction of the share price.

Check out our latest analysis for Riyadh Cables Group

Keen to find out how analysts think Riyadh Cables Group's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Riyadh Cables Group's Growth Trending?

There's an inherent assumption that a company should be matching the market for P/E ratios like Riyadh Cables Group's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 72% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 273% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 2.3% per year as estimated by the four analysts watching the company. With the market predicted to deliver 12% growth per year, the company is positioned for a weaker earnings result.

In light of this, it's curious that Riyadh Cables Group's P/E sits in line with the majority of other companies. Apparently many investors in the company are less bearish than analysts indicate and aren't willing to let go of their stock right now. Maintaining these prices will be difficult to achieve as this level of earnings growth is likely to weigh down the shares eventually.

The Bottom Line On Riyadh Cables Group's P/E

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Riyadh Cables Group currently trades on a higher than expected P/E since its forecast growth is lower than the wider market. Right now we are uncomfortable with the P/E as the predicted future earnings aren't likely to support a more positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

The company's balance sheet is another key area for risk analysis. Our free balance sheet analysis for Riyadh Cables Group with six simple checks will allow you to discover any risks that could be an issue.

It's important to make sure you look for a great company, not just the first idea you come across. So 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.