Rasan Information Technology Company (TADAWUL:8313) Stocks Shoot Up 28% But Its P/S Still Looks Reasonable

Rasan Information Technology Company (TADAWUL:8313) shareholders have had their patience rewarded with a 28% share price jump in the last month. 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.

Since its price has surged higher, given around half the companies in Saudi Arabia's Insurance industry have price-to-sales ratios (or "P/S") below 1.2x, you may consider Rasan Information Technology as a stock to avoid entirely with its 22x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/S.

Check out our latest analysis for Rasan Information Technology

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

Rasan Information Technology's revenue growth of late has been pretty similar to most other companies. Perhaps the market is expecting future revenue performance to improve, justifying the currently elevated P/S. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Rasan Information Technology.

Is There Enough Revenue Growth Forecasted For Rasan Information Technology?

The only time you'd be truly comfortable seeing a P/S as steep as Rasan Information Technology's is when the company's growth is on track to outshine the industry decidedly.

Retrospectively, the last year delivered an exceptional 28% gain to the company's top line. 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 three years should generate growth of 32% each year as estimated by the three analysts watching the company. Meanwhile, the rest of the industry is forecast to only expand by 0.7% per year, which is noticeably less attractive.

In light of this, it's understandable that Rasan Information Technology's P/S sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

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. While the price-to-sales ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of revenue expectations.

We've established that Rasan Information Technology maintains its high P/S on the strength of its forecasted revenue growth being higher than the the rest of the Insurance industry, as expected. At this stage investors feel the potential for a deterioration in revenues is quite remote, justifying the elevated P/S ratio. Unless these conditions change, they will continue to provide strong support to the share price.

You should always think about risks. Case in point, we've spotted 1 warning sign for Rasan Information Technology you should be aware of.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.