Pinning Down Saudi Arabian Mining Company (Ma'aden)'s (TADAWUL:1211) P/S Is Difficult Right Now

When you see that almost half of the companies in the Metals and Mining industry in Saudi Arabia have price-to-sales ratios (or "P/S") below 1.6x, Saudi Arabian Mining Company (Ma'aden) (TADAWUL:1211) looks to be giving off strong sell signals with its 5x 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.

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

How Has Saudi Arabian Mining Company (Ma'aden) Performed Recently?

Saudi Arabian Mining Company (Ma'aden) has been struggling lately as its revenue has declined faster than most other companies. Perhaps the market is predicting a change in fortunes for the company and is expecting them to blow past the rest of the industry, elevating the P/S ratio. 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 Saudi Arabian Mining Company (Ma'aden).

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

In order to justify its P/S ratio, Saudi Arabian Mining Company (Ma'aden) would need to produce outstanding growth that's well in excess of the industry.

In reviewing the last year of financials, we were disheartened to see the company's revenues fell to the tune of 22%. However, a few very strong years before that means that it was still able to grow revenue by an impressive 71% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing revenue over that time, even though it had some hiccups along the way.

Looking ahead now, revenue is anticipated to climb by 2.2% each year during the coming three years according to the ten analysts following the company. With the industry predicted to deliver 4.8% growth each year, the company is positioned for a weaker revenue result.

In light of this, it's alarming that Saudi Arabian Mining Company (Ma'aden)'s P/S sits above the majority of other companies. It seems most investors are hoping for a turnaround in the company's business prospects, but the analyst cohort is not so confident this will happen. There's a good chance these shareholders are setting themselves up for future disappointment if the P/S falls to levels more in line with the growth outlook.

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

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 concluded that Saudi Arabian Mining Company (Ma'aden) currently trades on a much higher than expected P/S since its forecast growth is lower than the wider industry. The weakness in the company's revenue estimate doesn't bode well for the elevated P/S, which could take a fall if the revenue sentiment doesn't improve. Unless these conditions improve markedly, it's very challenging to accept these prices as being reasonable.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Saudi Arabian Mining Company (Ma'aden) you should know about.

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.