Investors Appear Satisfied With Saudi Tadawul Group Holding Company's (TADAWUL:1111) Prospects As Shares Rocket 25%

Saudi Tadawul Group Holding Company (TADAWUL:1111) shares have continued their recent momentum with a 25% gain in the last month alone. The annual gain comes to 104% following the latest surge, making investors sit up and take notice.

Since its price has surged higher, Saudi Tadawul Group Holding's price-to-sales (or "P/S") ratio of 31.1x might make it look like a strong sell right now compared to other companies in the Capital Markets industry in Saudi Arabia, where around half of the companies have P/S ratios below 4.5x and even P/S below 2x are quite common. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

Check out our latest analysis for Saudi Tadawul Group Holding

How Saudi Tadawul Group Holding Has Been Performing

While the industry has experienced revenue growth lately, Saudi Tadawul Group Holding's revenue has gone into reverse gear, which is not great. It might be that many expect the dour revenue performance to recover substantially, which has kept the P/S from collapsing. However, if this isn't the case, investors might get caught out paying too much for the stock.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Saudi Tadawul Group Holding.

Is There Enough Revenue Growth Forecasted For Saudi Tadawul Group Holding?

There's an inherent assumption that a company should far outperform the industry for P/S ratios like Saudi Tadawul Group Holding's to be considered reasonable.

Retrospectively, the last year delivered a frustrating 1.6% decrease to the company's top line. At least revenue has managed not to go completely backwards from three years ago in aggregate, thanks to the earlier period of growth. Therefore, it's fair to say that revenue growth has been inconsistent recently for the company.

Turning to the outlook, the next three years should generate growth of 14% per year as estimated by the six analysts watching the company. That's shaping up to be materially higher than the 9.7% per year growth forecast for the broader industry.

With this in mind, it's not hard to understand why Saudi Tadawul Group Holding's P/S is high relative to its industry peers. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From Saudi Tadawul Group Holding's P/S?

Shares in Saudi Tadawul Group Holding have seen a strong upwards swing lately, which has really helped boost its P/S figure. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Saudi Tadawul Group Holding's analyst forecasts revealed that its superior revenue outlook is contributing to its high P/S. It appears that shareholders are confident in the company's future revenues, which is propping up the P/S. Unless these conditions change, they will continue to provide strong support to the share price.

You always need to take note of risks, for example - Saudi Tadawul Group Holding has 1 warning sign we think you should be aware of.

If you're unsure about the strength of Saudi Tadawul Group Holding'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.