Some Confidence Is Lacking In Saudi Fisheries Company (TADAWUL:6050) As Shares Slide 68%

Saudi Fisheries Company (TADAWUL:6050) shareholders that were waiting for something to happen have been dealt a blow with a 68% share price drop in the last month. For any long-term shareholders, the last month ends a year to forget by locking in a 75% share price decline.

Although its price has dipped substantially, Saudi Fisheries may still be sending very bearish signals at the moment with a price-to-sales (or "P/S") ratio of 6.1x, since almost half of all companies in the Food industry in Saudi Arabia have P/S ratios under 3.9x and even P/S lower than 1.9x are not unusual. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

See our latest analysis for Saudi Fisheries

How Saudi Fisheries Has Been Performing

Revenue has risen firmly for Saudi Fisheries recently, which is pleasing to see. Perhaps the market is expecting this decent revenue performance to beat out the industry over the near term, which has kept the P/S propped up. If not, then existing shareholders may be a little nervous about the viability of the share price.

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

Is There Enough Revenue Growth Forecasted For Saudi Fisheries?

Saudi Fisheries' P/S ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 15% last year. The solid recent performance means it was also able to grow revenue by 16% in total over the last three years. Accordingly, shareholders would have probably been satisfied with the medium-term rates of revenue growth.

It's interesting to note that the rest of the industry is similarly expected to grow by 7.2% over the next year, which is fairly even with the company's recent medium-term annualised growth rates.

In light of this, it's curious that Saudi Fisheries' P/S sits above the majority of other companies. It seems most investors are ignoring the fairly average recent growth rates and are willing to pay up for exposure to the stock. Nevertheless, they may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

The Bottom Line On Saudi Fisheries' P/S

Saudi Fisheries' shares may have suffered, but its P/S remains high. Using the price-to-sales ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

Our examination of Saudi Fisheries revealed its three-year revenue trends aren't impacting its high P/S as much as we would have predicted, given they look similar to current industry expectations. Right now we are uncomfortable with the high P/S as this revenue performance isn't likely to support such positive sentiment for long. Unless there is a significant improvement in the company's medium-term trends, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.

Don't forget that there may be other risks. For instance, we've identified 4 warning signs for Saudi Fisheries (3 can't be ignored) you should be aware of.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.

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