Al-Etihad Cooperative Insurance Company's (TADAWUL:8170) 26% Price Boost Is Out Of Tune With Revenues

Al-Etihad Cooperative Insurance Company (TADAWUL:8170) shares have continued their recent momentum with a 26% gain in the last month alone. Looking back a bit further, it's encouraging to see the stock is up 65% in the last year.

Even after such a large jump in price, you could still be forgiven for feeling indifferent about Al-Etihad Cooperative Insurance's P/S ratio of 1x, since the median price-to-sales (or "P/S") ratio for the Insurance industry in Saudi Arabia is also close to 1.5x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

View our latest analysis for Al-Etihad Cooperative Insurance

What Does Al-Etihad Cooperative Insurance's P/S Mean For Shareholders?

The revenue growth achieved at Al-Etihad Cooperative Insurance over the last year would be more than acceptable for most companies. Perhaps the market is expecting future revenue performance to only keep up with the broader industry, which has keeping the P/S in line with expectations. Those who are bullish on Al-Etihad Cooperative Insurance will be hoping that this isn't the case, so that they can pick up the stock at a lower valuation.

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

How Is Al-Etihad Cooperative Insurance's Revenue Growth Trending?

The only time you'd be comfortable seeing a P/S like Al-Etihad Cooperative Insurance's is when the company's growth is tracking the industry closely.

Taking a look back first, we see that the company grew revenue by an impressive 17% last year. Pleasingly, revenue has also lifted 50% in aggregate from three years ago, thanks to the last 12 months of growth. Therefore, it's fair to say the revenue growth recently has been superb for the company.

Comparing that to the industry, which is predicted to deliver 18% growth in the next 12 months, the company's momentum is weaker, based on recent medium-term annualised revenue results.

With this in mind, we find it intriguing that Al-Etihad Cooperative Insurance's P/S is comparable to that of its industry peers. It seems most investors are ignoring the fairly limited recent growth rates and are willing to pay up for exposure to the stock. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

The Key Takeaway

Al-Etihad Cooperative Insurance appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of Al-Etihad Cooperative Insurance revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. Right now we are uncomfortable with the P/S as this revenue performance isn't likely to support a more positive sentiment for long. If recent medium-term revenue trends continue, the probability of a share price decline will become quite substantial, placing shareholders at risk.

Having said that, be aware Al-Etihad Cooperative Insurance is showing 1 warning sign in our investment analysis, you should know about.

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.