Earnings Tell The Story For Al Masane Al Kobra Mining Company (TADAWUL:1322)

Al Masane Al Kobra Mining Company's (TADAWUL:1322) price-to-earnings (or "P/E") ratio of 73.5x 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 25x and even P/E's below 17x are quite common. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

Al Masane Al Kobra Mining 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. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

Check out our latest analysis for Al Masane Al Kobra Mining

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Al Masane Al Kobra Mining.

How Is Al Masane Al Kobra Mining's Growth Trending?

There's an inherent assumption that a company should far outperform the market for P/E ratios like Al Masane Al Kobra Mining's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 19% last year. However, this wasn't enough as the latest three year period has seen a very unpleasant 62% drop in EPS in aggregate. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Shifting to the future, estimates from the lone analyst covering the company suggest earnings should grow by 74% over the next year. That's shaping up to be materially higher than the 19% growth forecast for the broader market.

In light of this, it's understandable that Al Masane Al Kobra Mining'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 Key Takeaway

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.

As we suspected, our examination of Al Masane Al Kobra Mining's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

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 these risks are making you reconsider your opinion on Al Masane Al Kobra Mining, 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.