Earnings Not Telling The Story For National Company for Learning and Education (TADAWUL:4291) After Shares Rise 29%

National Company for Learning and Education (TADAWUL:4291) shares have continued their recent momentum with a 29% gain in the last month alone. The annual gain comes to 104% following the latest surge, making investors sit up and take notice.

Following the firm bounce in price, National Company for Learning and Education may be sending very bearish signals at the moment with a price-to-earnings (or "P/E") ratio of 77.4x, since almost half of all companies in Saudi Arabia have P/E ratios under 25x and even P/E's lower than 16x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

National Company for Learning and Education certainly has been doing a good job lately as it's been growing earnings more than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

View our latest analysis for National Company for Learning and Education

Keen to find out how analysts think National Company for Learning and Education's future stacks up against the industry? In that case, our free report is a great place to start.

How Is National Company for Learning and Education's Growth Trending?

There's an inherent assumption that a company should far outperform the market for P/E ratios like National Company for Learning and Education's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 24%. The strong recent performance means it was also able to grow EPS by 217% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Shifting to the future, estimates from the lone analyst covering the company suggest earnings should grow by 21% over the next year. Meanwhile, the rest of the market is forecast to expand by 19%, which is not materially different.

With this information, we find it interesting that National Company for Learning and Education is trading at a high P/E compared to the market. Apparently many investors in the company are more bullish than analysts indicate and aren't willing to let go of their stock right now. These shareholders may be setting themselves up for disappointment if the P/E falls to levels more in line with the growth outlook.

The Bottom Line On National Company for Learning and Education's P/E

Shares in National Company for Learning and Education have built up some good momentum lately, which has really inflated its P/E. While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

Our examination of National Company for Learning and Education's analyst forecasts revealed that its market-matching earnings outlook isn't impacting its high P/E as much as we would have predicted. Right now we are uncomfortable with the relatively high share price as the predicted future earnings aren't likely to support such positive sentiment for long. This places shareholders' investments at risk and potential investors in danger of paying an unnecessary premium.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for National Company for Learning and Education with six simple checks on some of these key factors.

If you're unsure about the strength of National Company for Learning and Education's 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.