The Market Lifts The Mediterranean and Gulf Cooperative Insurance and Reinsurance Company (TADAWUL:8030) Shares 25% But It Can Do More

The Mediterranean and Gulf Cooperative Insurance and Reinsurance Company (TADAWUL:8030) shareholders would be excited to see that the share price has had a great month, posting a 25% gain and recovering from prior weakness. Looking back a bit further, it's encouraging to see the stock is up 86% in the last year.

Although its price has surged higher, it's still not a stretch to say that Mediterranean and Gulf Cooperative Insurance and Reinsurance's price-to-sales (or "P/S") ratio of 0.8x right now seems quite "middle-of-the-road" compared to the Insurance industry in Saudi Arabia, where the median P/S ratio is around 1.1x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

View our latest analysis for Mediterranean and Gulf Cooperative Insurance and Reinsurance

What Does Mediterranean and Gulf Cooperative Insurance and Reinsurance's Recent Performance Look Like?

It looks like revenue growth has deserted Mediterranean and Gulf Cooperative Insurance and Reinsurance recently, which is not something to boast about. One possibility is that the P/S is moderate because investors think this benign revenue growth rate might not be enough to outperform the broader industry in the near future. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's not quite in favour.

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Mediterranean and Gulf Cooperative Insurance and Reinsurance's earnings, revenue and cash flow.

Do Revenue Forecasts Match The P/S Ratio?

Mediterranean and Gulf Cooperative Insurance and Reinsurance's P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Taking a look back first, we see that there was hardly any revenue growth to speak of for the company over the past year. Although pleasingly revenue has lifted 105% in aggregate from three years ago, notwithstanding the last 12 months. So while the company has done a solid job in the past, it's somewhat concerning to see revenue growth decline as much as it has.

Comparing that to the industry, which is predicted to shrink 9.6% in the next 12 months, the company's positive momentum based on recent medium-term revenue results is a bright spot for the moment.

With this in mind, we find it intriguing that Mediterranean and Gulf Cooperative Insurance and Reinsurance's P/S matches its industry peers. It looks like most investors are not convinced the company can maintain its recent positive growth rate in the face of a shrinking broader industry.

What We Can Learn From Mediterranean and Gulf Cooperative Insurance and Reinsurance's P/S?

Its shares have lifted substantially and now Mediterranean and Gulf Cooperative Insurance and Reinsurance's P/S is back within range of the industry median. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

As mentioned previously, Mediterranean and Gulf Cooperative Insurance and Reinsurance currently trades on a P/S on par with the wider industry, but this is lower than expected considering its recent three-year revenue growth is beating forecasts for a struggling industry. When we see a history of positive growth in a struggling industry, but only an average P/S, we assume potential risks are what might be placing pressure on the P/S ratio. Without the guidance of analysts, perhaps shareholders are feeling uncertain over whether the revenue performance can continue amidst a declining industry outlook. The fact that the company's relative performance has not provided a kick to the share price suggests that some investors are anticipating revenue instability.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Mediterranean and Gulf Cooperative Insurance and Reinsurance you should know about.

Of course, profitable companies with a history of great earnings growth are generally safer bets. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.