Investors Appear Satisfied With Rasan Information Technology Company's (TADAWUL:8313) Prospects As Shares Rocket 30%

Despite an already strong run, Rasan Information Technology Company (TADAWUL:8313) shares have been powering on, with a gain of 30% in the last thirty days. Longer-term shareholders would be thankful for the recovery in the share price since it's now virtually flat for the year after the recent bounce.

After such a large jump in price, given around half the companies in Saudi Arabia's Insurance industry have price-to-sales ratios (or "P/S") below 1x, you may consider Rasan Information Technology as a stock to avoid entirely with its 19.1x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's so lofty.

View our latest analysis for Rasan Information Technology

What Does Rasan Information Technology's P/S Mean For Shareholders?

Rasan Information Technology certainly has been doing a good job lately as it's been growing revenue more than most other companies. It seems the market expects this form will continue into the future, hence the elevated P/S ratio. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Keen to find out how analysts think Rasan Information Technology's future stacks up against the industry? In that case, our free report is a great place to start.

Is There Enough Revenue Growth Forecasted For Rasan Information Technology?

In order to justify its P/S ratio, Rasan Information Technology would need to produce outstanding growth that's well in excess of the industry.

If we review the last year of revenue growth, the company posted a terrific increase of 28%. Pleasingly, revenue has also lifted 257% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing revenue over that time.

Turning to the outlook, the next year should demonstrate the company's robustness, generating growth of 48% as estimated by the lone analyst watching the company. With the rest of the industry predicted to shrink by 8.6%, that would be a fantastic result.

With this in consideration, we understand why Rasan Information Technology's P/S is a cut above its industry peers. At this time, shareholders aren't keen to offload something that is potentially eyeing a much more prosperous future.

The Bottom Line On Rasan Information Technology's P/S

Shares in Rasan Information Technology have seen a strong upwards swing lately, which has really helped boost its P/S figure. 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 we suspected, our examination of Rasan Information Technology's analyst forecasts revealed that its superior revenue outlook against a shaky industry is contributing to its high P/S. Right now shareholders are comfortable with the P/S as they are quite confident future revenues aren't under threat. We still remain cautious about the company's ability to keep swimming against the current of the broader industry turmoil. Otherwise, it's hard to see the share price falling strongly in the near future under the current growth expectations.

Having said that, be aware Rasan Information Technology is showing 1 warning sign in our investment analysis, 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.