Earnings Tell The Story For Saudi Marketing Company (TADAWUL:4006) As Its Stock Soars 25%

Despite an already strong run, Saudi Marketing Company (TADAWUL:4006) shares have been powering on, with a gain of 25% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 46% in the last year.

Following the firm bounce in price, Saudi Marketing may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 55.7x, since almost half of all companies in Saudi Arabia have P/E ratios under 28x and even P/E's lower than 18x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

Recent times haven't been advantageous for Saudi Marketing as its earnings have been rising slower than most other companies. It might be that many expect the uninspiring earnings performance to recover significantly, 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.

View our latest analysis for Saudi Marketing

Keen to find out how analysts think Saudi Marketing's future stacks up against the industry? In that case, our free report is a great place to start.

How Is Saudi Marketing's Growth Trending?

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

Retrospectively, the last year delivered a decent 3.7% gain to the company's bottom line. Still, lamentably EPS has fallen 35% in aggregate from three years ago, which is disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Looking ahead now, EPS is anticipated to climb by 39% during the coming year according to the sole analyst following the company. That's shaping up to be materially higher than the 18% growth forecast for the broader market.

With this information, we can see why Saudi Marketing is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Bottom Line On Saudi Marketing's P/E

Saudi Marketing's P/E is flying high just like its stock has during the last month. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Saudi Marketing's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

There are also other vital risk factors to consider and we've discovered 2 warning signs for Saudi Marketing (1 is concerning!) that you should be aware of before investing here.

Of course, you might also be able to find a better stock than Saudi Marketing. 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.