Saudi Arabian Mining Company (Ma'aden)'s (TADAWUL:1211) Price Is Right But Growth Is Lacking After Shares Rocket 55%

Saudi Arabian Mining Company (Ma'aden) (TADAWUL:1211) shareholders would be excited to see that the share price has had a great month, posting a 55% gain and recovering from prior weakness. Looking back a bit further, it's encouraging to see the stock is up 92% in the last year.

Although its price has surged higher, Saudi Arabian Mining Company (Ma'aden) may still be sending bullish signals at the moment with its price-to-earnings (or "P/E") ratio of 18.2x, since almost half of all companies in Saudi Arabia have P/E ratios greater than 28x and even P/E's higher than 46x are not unusual. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

With its earnings growth in positive territory compared to the declining earnings of most other companies, Saudi Arabian Mining Company (Ma'aden) has been doing quite well of late. One possibility is that the P/E is low because investors think the company's earnings are going to fall away like everyone else's soon. If not, then existing shareholders have reason to be quite optimistic about the future direction of the share price.

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

Keen to find out how analysts think Saudi Arabian Mining Company (Ma'aden)'s future stacks up against the industry? In that case, our free report is a great place to start.

Does Growth Match The Low P/E?

There's an inherent assumption that a company should underperform 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 291% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 2,727% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

Shifting to the future, estimates from the ten analysts covering the company suggest earnings growth is heading into negative territory, declining 12% each year over the next three years. Meanwhile, the broader market is forecast to expand by 14% each year, which paints a poor picture.

In light of this, it's understandable that Saudi Arabian Mining Company (Ma'aden)'s P/E would sit below the majority of other companies. However, shrinking earnings are unlikely to lead to a stable P/E over the longer term. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Key Takeaway

Despite Saudi Arabian Mining Company (Ma'aden)'s shares building up a head of steam, its P/E still lags most other companies. 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 low P/E on the weakness of its forecast for sliding earnings, as expected. At this stage investors feel the potential for an improvement in earnings isn't great enough to justify a higher P/E ratio. It's hard to see the share price rising strongly in the near future under these circumstances.

Having said that, be aware Saudi Arabian Mining Company (Ma'aden) is showing 3 warning signs in our investment analysis, and 2 of those shouldn't be ignored.

If you're unsure about the strength of Saudi Arabian Mining Company (Ma'aden)'s business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.