Abdullah Al-Othaim Markets Company's (TADAWUL:4001) Low P/E No Reason For Excitement

With a price-to-earnings (or "P/E") ratio of 21x Abdullah Al-Othaim Markets Company (TADAWUL:4001) may be sending bullish signals at the moment, given that almost half of all companies in Saudi Arabia have P/E ratios greater than 26x and even P/E's higher than 41x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

While the market has experienced earnings growth lately, Abdullah Al-Othaim Markets' earnings have gone into reverse gear, which is not great. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

See our latest analysis for Abdullah Al-Othaim Markets

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Is There Any Growth For Abdullah Al-Othaim Markets?

The only time you'd be truly comfortable seeing a P/E as low as Abdullah Al-Othaim Markets' is when the company's growth is on track to lag the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 55%. That put a dampener on the good run it was having over the longer-term as its three-year EPS growth is still a noteworthy 20% in total. So we can start by confirming that the company has generally done a good job of growing earnings over that time, even though it had some hiccups along the way.

Shifting to the future, estimates from the ten analysts covering the company suggest earnings should grow by 10% per year over the next three years. Meanwhile, the rest of the market is forecast to expand by 14% per annum, which is noticeably more attractive.

In light of this, it's understandable that Abdullah Al-Othaim Markets' P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

What We Can Learn From Abdullah Al-Othaim Markets' P/E?

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

As we suspected, our examination of Abdullah Al-Othaim Markets' analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

There are also other vital risk factors to consider and we've discovered 3 warning signs for Abdullah Al-Othaim Markets (1 is potentially serious!) that you should be aware of before investing here.

Of course, you might also be able to find a better stock than Abdullah Al-Othaim Markets. 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.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team@simplywallst.com