Saudi Printing and Packaging Co. (TADAWUL:4270) Investors Are Less Pessimistic Than Expected

With a median price-to-sales (or "P/S") ratio of close to 1.4x in the Commercial Services industry in Saudi Arabia, you could be forgiven for feeling indifferent about Saudi Printing and Packaging Co.'s (TADAWUL:4270) P/S ratio of 1.1x. 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.

See our latest analysis for Saudi Printing and Packaging

What Does Saudi Printing and Packaging's P/S Mean For Shareholders?

For instance, Saudi Printing and Packaging's receding revenue in recent times would have to be some food for thought. It might be that many expect the company to put the disappointing revenue performance behind them over the coming period, which has kept the P/S from falling. If you like the company, you'd at least be hoping this is the case so that you could potentially pick up some stock while it's not quite in favour.

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

How Is Saudi Printing and Packaging's Revenue Growth Trending?

The only time you'd be comfortable seeing a P/S like Saudi Printing and Packaging's is when the company's growth is tracking the industry closely.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 14%. At least revenue has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Comparing the recent medium-term revenue trends against the industry's one-year growth forecast of 15% shows it's noticeably less attractive.

With this information, we find it interesting that Saudi Printing and Packaging is trading at a fairly similar P/S compared to the industry. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as a continuation of recent revenue trends is likely to weigh down the shares eventually.

The Key Takeaway

Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Our examination of Saudi Printing and Packaging revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. Unless there is a significant improvement in the company's medium-term performance, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.

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

If these risks are making you reconsider your opinion on Saudi Printing and Packaging, 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.