Investors Interested In Saudi Arabian Mining Company (Ma'aden)'s (TADAWUL:1211) Earnings

With a price-to-earnings (or "P/E") ratio of 74.5x Saudi Arabian Mining Company (Ma'aden) (TADAWUL:1211) may be sending very bearish signals at the moment, given that almost half of all companies in Saudi Arabia have P/E ratios under 25x and even P/E's lower than 16x are not unusual. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

While the market has experienced earnings growth lately, Saudi Arabian Mining Company (Ma'aden)'s earnings have gone into reverse gear, which is not great. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

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

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Saudi Arabian Mining Company (Ma'aden).

Does Growth Match The High P/E?

Saudi Arabian Mining Company (Ma'aden)'s P/E ratio would be typical for a company that's expected to deliver very strong growth, and importantly, perform much better than the market.

Retrospectively, the last year delivered a frustrating 72% decrease to the company's bottom line. However, a few very strong years before that means that it was still able to grow EPS by an impressive 136% in total over the last three years. Although it's been a bumpy ride, it's still fair to say the earnings growth recently has been more than adequate for the company.

Turning to the outlook, the next three years should generate growth of 37% each year as estimated by the eight analysts watching the company. That's shaping up to be materially higher than the 15% each 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 Key Takeaway

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

As we suspected, our examination of Saudi Arabian Mining Company (Ma'aden)'s analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

Having said that, be aware Saudi Arabian Mining Company (Ma'aden) is showing 1 warning sign in our investment analysis, you should know about.

If P/E ratios interest you, 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.

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