Getting In Cheap On National Building and Marketing Co. (TADAWUL:9510) Might Be Difficult

When close to half the companies in the Trade Distributors industry in Saudi Arabia have price-to-sales ratios (or "P/S") below 2.4x, you may consider National Building and Marketing Co. (TADAWUL:9510) as a stock to potentially avoid with its 3.4x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's as high as it is.

View our latest analysis for National Building and Marketing

What Does National Building and Marketing's Recent Performance Look Like?

The revenue growth achieved at National Building and Marketing over the last year would be more than acceptable for most companies. Perhaps the market is expecting this decent revenue performance to beat out the industry over the near term, which has kept the P/S propped up. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

Do Revenue Forecasts Match The High P/S Ratio?

There's an inherent assumption that a company should outperform the industry for P/S ratios like National Building and Marketing's to be considered reasonable.

Taking a look back first, we see that the company managed to grow revenues by a handy 13% last year. This was backed up an excellent period prior to see revenue up by 109% 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 recent medium-term revenue trajectory with the industry's one-year growth forecast of 2.8% shows it's noticeably more attractive.

With this information, we can see why National Building and Marketing 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.

The Key Takeaway

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

It's no surprise that National Building and Marketing can support its high P/S given the strong revenue growth its experienced over the last three-year is superior to the current industry outlook. In the eyes of shareholders, the probability of a continued growth trajectory is great enough to prevent the P/S from pulling back. Barring any significant changes to the company's ability to make money, the share price should continue to be propped up.

You should always think about risks. Case in point, we've spotted 3 warning signs for National Building and Marketing you should be aware of, and 1 of them can't be ignored.

If these risks are making you reconsider your opinion on National Building and Marketing, 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.