Earnings Tell The Story For Ataa Educational Company (TADAWUL:4292) As Its Stock Soars 26%

Ataa Educational Company (TADAWUL:4292) shares have had a really impressive month, gaining 26% after a shaky period beforehand. But the gains over the last month weren't enough to make shareholders whole, as the share price is still down 3.3% in the last twelve months.

After such a large jump in price, Ataa Educational's price-to-earnings (or "P/E") ratio of 43.4x might make it look like a strong sell right now compared to the market in Saudi Arabia, where around half of the companies have P/E ratios below 24x and even P/E's below 16x are quite common. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Recent times have been advantageous for Ataa Educational as its earnings have been rising faster than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Ataa Educational

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Ataa Educational.

What Are Growth Metrics Telling Us About The High P/E?

In order to justify its P/E ratio, Ataa Educational would need to produce outstanding growth well in excess of the market.

If we review the last year of earnings growth, the company posted a terrific increase of 26%. Pleasingly, EPS has also lifted 49% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Turning to the outlook, the next three years should generate growth of 24% per annum as estimated by the two analysts watching the company. That's shaping up to be materially higher than the 16% per annum growth forecast for the broader market.

In light of this, it's understandable that Ataa Educational's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Final Word

Ataa Educational's P/E is flying high just like its stock has during the last month. Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

We've established that Ataa Educational maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

Before you settle on your opinion, we've discovered 1 warning sign for Ataa Educational that you should be aware of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

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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.

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