Al Masane Al Kobra Mining Company's (TADAWUL:1322) Price In Tune With Earnings

Al Masane Al Kobra Mining Company's (TADAWUL:1322) price-to-earnings (or "P/E") ratio of 39.2x 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 24x and even P/E's below 17x 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.

Recent times have been advantageous for Al Masane Al Kobra Mining 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.

Check out our latest analysis for Al Masane Al Kobra Mining

Keen to find out how analysts think Al Masane Al Kobra Mining's future stacks up against the industry? In that case, our free report is a great place to start.

Does Growth Match The High P/E?

In order to justify its P/E ratio, Al Masane Al Kobra Mining would need to produce outstanding growth well in excess of the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 141% last year. Despite this strong recent growth, it's still struggling to catch up as its three-year EPS frustratingly shrank by 40% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the only analyst covering the company suggest earnings should grow by 19% over the next year. With the market only predicted to deliver 16%, the company is positioned for a stronger earnings result.

With this information, we can see why Al Masane Al Kobra Mining is trading at such a high P/E compared to the market. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

What We Can Learn From Al Masane Al Kobra Mining's P/E?

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.

We've established that Al Masane Al Kobra Mining 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.

We don't want to rain on the parade too much, but we did also find 1 warning sign for Al Masane Al Kobra Mining that you need to be mindful of.

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.