Al Obeikan Glass Company (TADAWUL:9531) Shares May Have Slumped 25% But Getting In Cheap Is Still Unlikely

Al Obeikan Glass Company (TADAWUL:9531) shareholders that were waiting for something to happen have been dealt a blow with a 25% share price drop in the last month. The drop over the last 30 days has capped off a tough year for shareholders, with the share price down 20% in that time.

In spite of the heavy fall in price, Al Obeikan Glass' price-to-earnings (or "P/E") ratio of 41.9x might still make it look like a strong sell right now compared to the market in Saudi Arabia, where around half of the companies have P/E ratios below 22x and even P/E's below 15x are quite common. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

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For instance, Al Obeikan Glass' receding earnings in recent times would have to be some food for thought. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Al Obeikan Glass

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

Does Growth Match The High P/E?

The only time you'd be truly comfortable seeing a P/E as steep as Al Obeikan Glass' is when the company's growth is on track to outshine the market decidedly.

Retrospectively, the last year delivered a frustrating 69% decrease to the company's bottom line. The last three years don't look nice either as the company has shrunk EPS by 83% in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Comparing that to the market, which is predicted to deliver 14% growth in the next 12 months, the company's downward momentum based on recent medium-term earnings results is a sobering picture.

With this information, we find it concerning that Al Obeikan Glass is trading at a P/E higher than the market. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. There's a very good chance existing shareholders are setting themselves up for future disappointment if the P/E falls to levels more in line with the recent negative growth rates.

What We Can Learn From Al Obeikan Glass' P/E?

A significant share price dive has done very little to deflate Al Obeikan Glass' very lofty P/E. 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 Al Obeikan Glass currently trades on a much higher than expected P/E since its recent earnings have been in decline over the medium-term. Right now we are increasingly uncomfortable with the high P/E as this earnings performance is highly unlikely to support such positive sentiment for long. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.

We don't want to rain on the parade too much, but we did also find 4 warning signs for Al Obeikan Glass (2 don't sit too well with us!) that you need to be mindful of.

Of course, you might also be able to find a better stock than Al Obeikan Glass. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.