Stock Analysis

Al Rajhi Company for Cooperative Insurance's (TADAWUL:8230) P/S Is Still On The Mark Following 34% Share Price Bounce

SASE:8230
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Al Rajhi Company for Cooperative Insurance (TADAWUL:8230) shareholders would be excited to see that the share price has had a great month, posting a 34% gain and recovering from prior weakness. The last month tops off a massive increase of 113% in the last year.

After such a large jump in price, given close to half the companies operating in Saudi Arabia's Insurance industry have price-to-sales ratios (or "P/S") below 1.3x, you may consider Al Rajhi Company for Cooperative Insurance as a stock to potentially avoid with its 2.5x P/S ratio. However, the P/S might be high for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Al Rajhi Company for Cooperative Insurance

ps-multiple-vs-industry
SASE:8230 Price to Sales Ratio vs Industry March 1st 2024

What Does Al Rajhi Company for Cooperative Insurance's Recent Performance Look Like?

With revenue growth that's exceedingly strong of late, Al Rajhi Company for Cooperative Insurance has been doing very well. The P/S ratio is probably high because investors think this strong revenue growth will be enough to outperform the broader industry in the near future. However, if this isn't the case, investors might get caught out paying too much for the stock.

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

How Is Al Rajhi Company for Cooperative Insurance's Revenue Growth Trending?

Al Rajhi Company for Cooperative Insurance's P/S ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 46%. The strong recent performance means it was also able to grow revenue by 36% in total over the last three years. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Comparing that to the industry, which is predicted to shrink 0.9% 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, it's clear to us why Al Rajhi Company for Cooperative Insurance's P/S exceeds that of its industry peers. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the industry. However, its current revenue trajectory will be very difficult to maintain against the headwinds other companies are facing at the moment.

The Final Word

Al Rajhi Company for Cooperative Insurance's P/S is on the rise since its shares have risen strongly. 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.

As we suspected, our examination of Al Rajhi Company for Cooperative Insurance revealed its growing revenue over the medium-term is helping prop up its high P/S compared to its peers, given the industry is set to shrink. It could be said that investors feel this revenue growth will continue into the future, justifying a higher P/S ratio. We still remain cautious about the company's ability to stay its recent course and swim against the current of the broader industry turmoil. If things remain consistent though, shareholders shouldn't expect any major share price shocks in the near term.

Before you take the next step, you should know about the 2 warning signs for Al Rajhi Company for Cooperative Insurance (1 can't be ignored!) that we have uncovered.

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.

Valuation is complex, but we're helping make it simple.

Find out whether Al Rajhi Company for Cooperative Insurance is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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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.