Tanmiah Food Company's (TADAWUL:2281) Popularity With Investors Is Clear

When close to half the companies in Saudi Arabia have price-to-earnings ratios (or "P/E's") below 24x, you may consider Tanmiah Food Company (TADAWUL:2281) as a stock to avoid entirely with its 41.1x 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 so lofty.

While the market has experienced earnings growth lately, Tanmiah Food's earnings have gone into reverse gear, which is not great. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Tanmiah Food

Keen to find out how analysts think Tanmiah Food's future stacks up against the industry? In that case, our free report is a great place to start.

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

Tanmiah Food's P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 9.2%. The last three years don't look nice either as the company has shrunk EPS by 34% in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the twin analysts covering the company suggest earnings should grow by 51% per annum over the next three years. Meanwhile, the rest of the market is forecast to only expand by 16% each year, which is noticeably less attractive.

In light of this, it's understandable that Tanmiah Food's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

We've established that Tanmiah Food maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless these conditions change, they will continue to provide strong support to the share price.

Plus, you should also learn about these 4 warning signs we've spotted with Tanmiah Food (including 2 which are potentially serious).

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

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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.