MOBI Industry Co.'s (TADAWUL:9517) P/E Is Still On The Mark Following 27% Share Price Bounce

MOBI Industry Co. (TADAWUL:9517) shareholders would be excited to see that the share price has had a great month, posting a 27% gain and recovering from prior weakness. Looking further back, the 14% rise over the last twelve months isn't too bad notwithstanding the strength over the last 30 days.

After such a large jump in price, MOBI Industry's price-to-earnings (or "P/E") ratio of 23.2x might make it look like a sell right now compared to the market in Saudi Arabia, where around half of the companies have P/E ratios below 20x and even P/E's below 14x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.

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For example, consider that MOBI Industry's financial performance has been poor lately as its earnings have been in decline. One possibility is that the P/E is high because investors think the company will still do enough to outperform the broader market in the near future. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for MOBI Industry

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

How Is MOBI Industry's Growth Trending?

In order to justify its P/E ratio, MOBI Industry would need to produce impressive growth in excess of the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 12%. Even so, admirably EPS has lifted 125% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 11% shows it's noticeably more attractive on an annualised basis.

With this information, we can see why MOBI Industry is trading at such a high P/E compared to the market. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse.

The Final Word

The large bounce in MOBI Industry's shares has lifted the company's P/E to a fairly high level. 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.

As we suspected, our examination of MOBI Industry revealed its three-year earnings trends are contributing to its high P/E, given they look better than current market expectations. Right now shareholders are comfortable with the P/E as they are quite confident earnings aren't under threat. If recent medium-term earnings trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

You should always think about risks. Case in point, we've spotted 2 warning signs for MOBI Industry you should be aware of.

You might be able to find a better investment than MOBI Industry. 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.