Market Participants Recognise Saudi Arabian Mining Company (Ma'aden)'s (TADAWUL:1211) Earnings

When close to half the companies in Saudi Arabia have price-to-earnings ratios (or "P/E's") below 24x, you may consider Saudi Arabian Mining Company (Ma'aden) (TADAWUL:1211) as a stock to avoid entirely with its 47.8x 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.

Saudi Arabian Mining Company (Ma'aden) certainly has been doing a good job lately as it's been growing earnings more than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. If not, then existing shareholders might be a little nervous about the viability of the share price.

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

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How Is Saudi Arabian Mining Company (Ma'aden)'s Growth Trending?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Saudi Arabian Mining Company (Ma'aden)'s to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 127% last year. Although, its longer-term performance hasn't been as strong with three-year EPS growth being relatively non-existent overall. Therefore, it's fair to say that earnings growth has been inconsistent recently for the company.

Shifting to the future, estimates from the nine analysts covering the company suggest earnings should grow by 23% each year over the next three years. That's shaping up to be materially higher than the 14% 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 Key Takeaway

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

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. 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.

The company's balance sheet is another key area for risk analysis. Take a look at our free balance sheet analysis for Saudi Arabian Mining Company (Ma'aden) with six simple checks on some of these key factors.

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.