Leejam Sports Company's (TADAWUL:1830) Business And Shares Still Trailing The Market

When close to half the companies in Saudi Arabia have price-to-earnings ratios (or "P/E's") above 24x, you may consider Leejam Sports Company (TADAWUL:1830) as an attractive investment with its 19.2x P/E ratio. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's superior to most other companies of late, Leejam Sports has been doing relatively well. One possibility is that the P/E is low because investors think this strong earnings performance might be less impressive moving forward. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

View our latest analysis for Leejam Sports

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

Does Growth Match The Low P/E?

There's an inherent assumption that a company should underperform the market for P/E ratios like Leejam Sports' to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 46%. The latest three year period has also seen an excellent 305% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Turning to the outlook, the next three years should generate growth of 5.7% per annum as estimated by the seven analysts watching the company. That's shaping up to be materially lower than the 14% per annum growth forecast for the broader market.

In light of this, it's understandable that Leejam Sports' 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.

The Bottom Line On Leejam Sports' 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.

We've established that Leejam Sports maintains its low P/E on the weakness of its forecast growth being lower than the wider market, as expected. 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.

Before you take the next step, you should know about the 2 warning signs for Leejam Sports (1 is a bit unpleasant!) that we have uncovered.

If you're unsure about the strength of Leejam Sports' business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.