Little Excitement Around Al-Baha Investment and Development Company's (TADAWUL:4130) Earnings As Shares Take 92% Pounding

Al-Baha Investment and Development Company (TADAWUL:4130) shareholders that were waiting for something to happen have been dealt a blow with a 92% share price drop in the last month. The recent drop completes a disastrous twelve months for shareholders, who are sitting on a 82% loss during that time.

After such a large drop in price, given about half the companies in Saudi Arabia have price-to-earnings ratios (or "P/E's") above 23x, you may consider Al-Baha Investment and Development as a highly attractive investment with its 8.9x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

Recent times have been quite advantageous for Al-Baha Investment and Development as its earnings have been rising very briskly. One possibility is that the P/E is low because investors think this strong earnings growth might actually underperform the broader market in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Check out our latest analysis for Al-Baha Investment and Development

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Al-Baha Investment and Development will help you shine a light on its historical performance.

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

There's an inherent assumption that a company should far underperform the market for P/E ratios like Al-Baha Investment and Development's to be considered reasonable.

If we review the last year of earnings growth, the company posted a terrific increase of 140%. Still, EPS has barely risen at all from three years ago in total, which is not ideal. Accordingly, shareholders probably wouldn't have been overly satisfied with the unstable medium-term growth rates.

This is in contrast to the rest of the market, which is expected to grow by 15% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we can see why Al-Baha Investment and Development is trading at a P/E lower than the market. Apparently many shareholders weren't comfortable holding on to something they believe will continue to trail the bourse.

The Bottom Line On Al-Baha Investment and Development's P/E

Having almost fallen off a cliff, Al-Baha Investment and Development's share price has pulled its P/E way down as well. 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 Al-Baha Investment and Development maintains its low P/E on the weakness of its recent three-year growth being lower than the wider market forecast, as expected. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. Unless the recent medium-term 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 3 warning signs for Al-Baha Investment and Development (1 is a bit unpleasant!) that we have uncovered.

Of course, you might also be able to find a better stock than Al-Baha Investment and Development. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.