Investors Continue Waiting On Sidelines For Saudi Enaya Cooperative Insurance Company (TADAWUL:8311)

There wouldn't be many who think Saudi Enaya Cooperative Insurance Company's (TADAWUL:8311) price-to-sales (or "P/S") ratio of 1.1x is worth a mention when the median P/S for the Insurance industry in Saudi Arabia is similar at about 1.4x. 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.

Check out our latest analysis for Saudi Enaya Cooperative Insurance

What Does Saudi Enaya Cooperative Insurance's P/S Mean For Shareholders?

Recent times have been quite advantageous for Saudi Enaya Cooperative Insurance as its revenue has been rising very briskly. Perhaps the market is expecting future revenue performance to taper off, which has kept the P/S from rising. Those who are bullish on Saudi Enaya 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 Saudi Enaya Cooperative Insurance will help you shine a light on its historical performance.

What Are Revenue Growth Metrics Telling Us About The P/S?

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

If we review the last year of revenue growth, the company posted a terrific increase of 49%. Pleasingly, revenue has also lifted 175% 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 only predicted to deliver 2.0% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised revenue results.

In light of this, it's curious that Saudi Enaya Cooperative Insurance's P/S sits in line with the majority of other companies. It may be that most investors are not convinced the company can maintain its recent growth rates.

The Bottom Line On Saudi Enaya Cooperative Insurance's P/S

We'd say the price-to-sales ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We didn't quite envision Saudi Enaya Cooperative Insurance's P/S sitting in line with the wider industry, considering the revenue growth over the last three-year is higher than the current industry outlook. It'd be fair to assume that potential risks the company faces could be the contributing factor to the lower than expected P/S. At least the risk of a price drop looks to be subdued if recent medium-term revenue trends continue, but investors seem to think future revenue could see some volatility.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Saudi Enaya Cooperative Insurance (at least 1 which shouldn't be ignored), and understanding these should be part of your investment process.

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.