A Piece Of The Puzzle Missing From Al Sagr Cooperative Insurance Company's (TADAWUL:8180) 34% Share Price Climb

Al Sagr Cooperative Insurance Company (TADAWUL:8180) shareholders would be excited to see that the share price has had a great month, posting a 34% gain and recovering from prior weakness. While recent buyers may be laughing, long-term holders might not be as pleased since the recent gain only brings the stock back to where it started a year ago.

Even after such a large jump in price, considering around half the companies operating in Saudi Arabia's Insurance industry have price-to-sales ratios (or "P/S") above 1.3x, you may still consider Al Sagr Cooperative Insurance as an solid investment opportunity with its 0.7x P/S ratio. However, the P/S might be low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Al Sagr Cooperative Insurance

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

It looks like revenue growth has deserted Al Sagr Cooperative Insurance recently, which is not something to boast about. Perhaps the market believes the recent lacklustre revenue performance is a sign of future underperformance relative to industry peers, hurting the P/S. If not, then existing shareholders may be feeling optimistic about the future direction of the share price.

Although there are no analyst estimates available for Al Sagr Cooperative Insurance, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Do Revenue Forecasts Match The Low P/S Ratio?

There's an inherent assumption that a company should underperform the industry for P/S ratios like Al Sagr Cooperative Insurance's to be considered reasonable.

Taking a look back first, we see that there was hardly any revenue growth to speak of for the company over the past year. Still, the latest three year period was better as it's delivered a decent 11% overall rise in revenue. So it appears to us that the company has had a mixed result in terms of growing revenue over that time.

In contrast to the company, the rest of the industry is expected to decline by 4.7% over the next year, which puts the company's recent medium-term positive growth rates in a good light for now.

With this information, we find it very odd that Al Sagr Cooperative Insurance is trading at a P/S lower than the industry. Apparently some shareholders believe the recent performance has exceeded its limits and have been accepting significantly lower selling prices.

The Final Word

The latest share price surge wasn't enough to lift Al Sagr Cooperative Insurance's P/S close to the industry median. Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Looking at the figures, it's surprising to see Al Sagr Cooperative Insurance currently trades on a much lower than expected P/S since its recent three-year revenue growth is beating forecasts for a struggling industry. We think potential risks might be placing significant pressure on the P/S ratio and share price. The most obvious risk is that its revenue trajectory may not keep outperforming under these tough industry conditions. At least the risk of a price drop looks to be subdued, but investors think future revenue could see a lot of volatility.

Plus, you should also learn about these 2 warning signs we've spotted with Al Sagr Cooperative Insurance.

If strong companies turning a profit tickle your fancy, then you'll want to 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.