The National Shipping Company of Saudi Arabia (TADAWUL:4030) Stock Rockets 27% But Many Are Still Ignoring The Company

The National Shipping Company of Saudi Arabia (TADAWUL:4030) shares have had a really impressive month, gaining 27% after a shaky period beforehand. Taking a wider view, although not as strong as the last month, the full year gain of 20% is also fairly reasonable.

Although its price has surged higher, given about half the companies in Saudi Arabia have price-to-earnings ratios (or "P/E's") above 22x, you may still consider National Shipping Company of Saudi Arabia as an attractive investment with its 13.4x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's limited.

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National Shipping Company of Saudi Arabia has been doing a decent job lately as it's been growing earnings at a reasonable pace. One possibility is that the P/E is low because investors think this good earnings growth might actually underperform the broader market in the near future. If that doesn't eventuate, then existing shareholders may have reason to be optimistic about the future direction of the share price.

Check out our latest analysis for National Shipping Company of Saudi Arabia

Although there are no analyst estimates available for National Shipping Company of Saudi Arabia, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Does Growth Match The Low P/E?

There's an inherent assumption that a company should underperform the market for P/E ratios like National Shipping Company of Saudi Arabia's to be considered reasonable.

If we review the last year of earnings growth, the company posted a worthy increase of 6.2%. Pleasingly, EPS has also lifted 535% in aggregate from three years ago, partly thanks to the last 12 months of growth. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Comparing that to the market, which is only predicted to deliver 11% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

In light of this, it's peculiar that National Shipping Company of Saudi Arabia's P/E sits below the majority of other companies. It looks like most investors are not convinced the company can maintain its recent growth rates.

What We Can Learn From National Shipping Company of Saudi Arabia's P/E?

National Shipping Company of Saudi Arabia'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 National Shipping Company of Saudi Arabia currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. When we see strong earnings with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. It appears many are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

Don't forget that there may be other risks. For instance, we've identified 3 warning signs for National Shipping Company of Saudi Arabia (1 is concerning) you should be aware of.

You might be able to find a better investment than National Shipping Company of Saudi Arabia. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.