Investors Appear Satisfied With Saudi Arabian Mining Company (Ma'aden)'s (TADAWUL:1211) Prospects As Shares Rocket 28%

Saudi Arabian Mining Company (Ma'aden) (TADAWUL:1211) shares have had a really impressive month, gaining 28% after a shaky period beforehand. Unfortunately, despite the strong performance over the last month, the full year gain of 3.0% isn't as attractive.

After such a large jump in price, given close to half the companies in Saudi Arabia have price-to-earnings ratios (or "P/E's") below 21x, you may consider Saudi Arabian Mining Company (Ma'aden) as a stock to avoid entirely with its 67.5x P/E ratio. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so lofty.

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Recent times have been advantageous for Saudi Arabian Mining Company (Ma'aden) as its earnings have been rising faster than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Saudi Arabian Mining Company (Ma'aden)

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What Are Growth Metrics Telling Us About The High P/E?

The only time you'd be truly comfortable seeing a P/E as steep as Saudi Arabian Mining Company (Ma'aden)'s is when the company's growth is on track to outshine the market decidedly.

Taking a look back first, we see that the company grew earnings per share by an impressive 82% last year. Still, incredibly EPS has fallen 47% in total from three years ago, which is quite disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing earnings over that time.

Looking ahead now, EPS is anticipated to climb by 28% per year during the coming three years according to the eight analysts following the company. That's shaping up to be materially higher than the 12% per year growth forecast for the broader market.

With this information, we can see why Saudi Arabian Mining Company (Ma'aden) is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Bottom Line On Saudi Arabian Mining Company (Ma'aden)'s P/E

Saudi Arabian Mining Company (Ma'aden)'s P/E is flying high just like its stock has during the last month. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Saudi Arabian Mining Company (Ma'aden) maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. Unless these conditions change, they will continue to provide strong support to the share price.

A lot of potential risks can sit within a company's balance sheet. Our free balance sheet analysis for Saudi Arabian Mining Company (Ma'aden) with six simple checks will allow you to discover any risks that could be an issue.

If these risks are making you reconsider your opinion on Saudi Arabian Mining Company (Ma'aden), explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.