A Piece Of The Puzzle Missing From Mulkia Investment Company's (TADAWUL:9585) 35% Share Price Climb

Mulkia Investment Company (TADAWUL:9585) shares have had a really impressive month, gaining 35% after a shaky period beforehand. Looking back a bit further, it's encouraging to see the stock is up 30% in the last year.

Although its price has surged higher, Mulkia Investment may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 12.3x, since almost half of all companies in Saudi Arabia have P/E ratios greater than 23x and even P/E's higher than 40x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

The end of cancer? These 15 emerging AI stocks are developing tech that will allow early identification of life changing diseases like cancer and Alzheimer's.

The earnings growth achieved at Mulkia Investment over the last year would be more than acceptable for most companies. It might be that many expect the respectable earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

View our latest analysis for Mulkia Investment

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

Does Growth Match The Low P/E?

There's an inherent assumption that a company should underperform the market for P/E ratios like Mulkia Investment's to be considered reasonable.

Retrospectively, the last year delivered an exceptional 17% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 191% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 14% shows it's noticeably more attractive on an annualised basis.

With this information, we find it odd that Mulkia Investment is trading at a P/E lower than the market. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Bottom Line On Mulkia Investment's P/E

Mulkia Investment's stock might have been given a solid boost, but its P/E certainly hasn't reached any great heights. 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 Mulkia Investment currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.

Before you take the next step, you should know about the 3 warning signs for Mulkia Investment (1 can't be ignored!) that we have uncovered.

If these risks are making you reconsider your opinion on Mulkia Investment, explore our interactive list of high quality stocks to get an idea of what else is out there.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.