Not Many Are Piling Into Al Obeikan Glass Company (TADAWUL:9531) Just Yet

When close to half the companies in Saudi Arabia have price-to-earnings ratios (or "P/E's") above 24x, you may consider Al Obeikan Glass Company (TADAWUL:9531) as a highly attractive investment with its 8.7x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

Al Obeikan Glass certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

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.

Is There Any Growth For Al Obeikan Glass?

In order to justify its P/E ratio, Al Obeikan Glass would need to produce anemic growth that's substantially trailing the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 57% last year. The strong recent performance means it was also able to grow EPS by 650% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Comparing that to the market, which is only predicted to deliver 16% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

In light of this, it's peculiar that Al Obeikan Glass' P/E sits below the majority of other companies. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Bottom Line On Al Obeikan Glass' 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.

Our examination of Al Obeikan Glass revealed its three-year earnings trends aren't contributing to its P/E anywhere near as much as we would have predicted, given they look better than current market expectations. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.

You should always think about risks. Case in point, we've spotted 2 warning signs for Al Obeikan Glass you should be aware 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 sit on P/E's below 20x 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.