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

Saudi Arabian Mining Company (Ma'aden)'s (TADAWUL:1211) price-to-earnings (or "P/E") ratio of 48.7x might make it look like a strong sell right now compared to the market in Saudi Arabia, where around half of the companies have P/E ratios below 20x and even P/E's below 13x are quite common. 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. The P/E is probably high because investors think this strong earnings performance will continue. If not, then existing shareholders might be a little nervous about the viability of the share price.

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

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Is There Enough Growth For Saudi Arabian Mining Company (Ma'aden)?

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.

Retrospectively, the last year delivered an exceptional 52% gain to the company's bottom line. Still, incredibly EPS has fallen 57% in total from three years ago, which is quite disappointing. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 26% each year as estimated by the nine analysts watching the company. With the market only predicted to deliver 12% each year, the company is positioned for a stronger earnings result.

In light of this, it's understandable that Saudi Arabian Mining Company (Ma'aden)'s P/E 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 Final Word

It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

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.

You should always think about risks. Case in point, we've spotted 1 warning sign for Saudi Arabian Mining Company (Ma'aden) you should be aware of.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on 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.