Here's Why We Think Saudi Advanced Industries (TADAWUL:2120) Is Well Worth Watching

By
Simply Wall St
Published
November 21, 2021
SASE:2120
Source: Shutterstock

Some have more dollars than sense, they say, so even companies that have no revenue, no profit, and a record of falling short, can easily find investors. But as Peter Lynch said in One Up On Wall Street, 'Long shots almost never pay off.'

So if you're like me, you might be more interested in profitable, growing companies, like Saudi Advanced Industries (TADAWUL:2120). Even if the shares are fully valued today, most capitalists would recognize its profits as the demonstration of steady value generation. While a well funded company may sustain losses for years, unless its owners have an endless appetite for subsidizing the customer, it will need to generate a profit eventually, or else breathe its last breath.

View our latest analysis for Saudi Advanced Industries

How Fast Is Saudi Advanced Industries Growing?

As one of my mentors once told me, share price follows earnings per share (EPS). Therefore, there are plenty of investors who like to buy shares in companies that are growing EPS. Impressively, Saudi Advanced Industries has grown EPS by 22% per year, compound, in the last three years. As a general rule, we'd say that if a company can keep up that sort of growth, shareholders will be smiling.

One way to double-check a company's growth is to look at how its revenue, and earnings before interest and tax (EBIT) margins are changing. Saudi Advanced Industries shareholders can take confidence from the fact that EBIT margins are up from 73% to 90%, and revenue is growing. That's great to see, on both counts.

You can take a look at the company's revenue and earnings growth trend, in the chart below. Click on the chart to see the exact numbers.

earnings-and-revenue-history
SASE:2120 Earnings and Revenue History November 22nd 2021

While profitability drives the upside, prudent investors always check the balance sheet, too.

Are Saudi Advanced Industries Insiders Aligned With All Shareholders?

It makes me feel more secure owning shares in a company if insiders also own shares, thusly more closely aligning our interests. So it is good to see that Saudi Advanced Industries insiders have a significant amount of capital invested in the stock. Given insiders own a small fortune of shares, currently valued at ر.س286m, they have plenty of motivation to push the business to succeed. That holding amounts to 12% of the stock on issue, thus making insiders influential, and aligned, owners of the business.

Does Saudi Advanced Industries Deserve A Spot On Your Watchlist?

Given my belief that share price follows earnings per share you can easily imagine how I feel about Saudi Advanced Industries's strong EPS growth. Further, the high level of insider ownership impresses me, and suggests that I'm not the only one who appreciates the EPS growth. Fast growth and confident insiders should be enough to warrant further research. So the answer is that I do think this is a good stock to follow along with. While we've looked at the quality of the earnings, we haven't yet done any work to value the stock. So if you like to buy cheap, you may want to check if Saudi Advanced Industries is trading on a high P/E or a low P/E, relative to its industry.

Of course, you can do well (sometimes) buying stocks that are not growing earnings and do not have insiders buying shares. But as a growth investor I always like to check out companies that do have those features. You can access a free list of them here.

Please note the insider transactions discussed in this article refer to reportable transactions in the relevant jurisdiction.

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