Insufficient Growth At Abdullah Al-Othaim Markets Company (TADAWUL:4001) Hampers Share Price

When close to half the companies in Saudi Arabia have price-to-earnings ratios (or "P/E's") above 23x, you may consider Abdullah Al-Othaim Markets Company (TADAWUL:4001) as an attractive investment with its 16.8x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

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Abdullah Al-Othaim Markets could be doing better as it's been growing earnings less than most other companies lately. It seems that many are expecting the uninspiring 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.

Check out our latest analysis for Abdullah Al-Othaim Markets

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How Is Abdullah Al-Othaim Markets' Growth Trending?

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, we see that the company managed to grow earnings per share by a handy 6.4% last year. The latest three year period has also seen an excellent 73% overall rise in EPS, aided somewhat by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Shifting to the future, estimates from the eight analysts covering the company suggest earnings growth is heading into negative territory, declining 4.2% over the next year. With the market predicted to deliver 14% growth , that's a disappointing outcome.

With this information, we are not surprised that Abdullah Al-Othaim Markets is trading at a P/E lower than the market. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. Even just maintaining these prices could be difficult to achieve as the weak outlook is weighing down the shares.

The Bottom Line On Abdullah Al-Othaim Markets' 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.

We've established that Abdullah Al-Othaim Markets maintains its low P/E on the weakness of its forecast for sliding earnings, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Abdullah Al-Othaim Markets that you should be aware of.

If these risks are making you reconsider your opinion on Abdullah Al-Othaim Markets, 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.