SABIC Agri-Nutrients Company's (TADAWUL:2020) Shares Lagging The Market But So Is The Business

SABIC Agri-Nutrients Company's (TADAWUL:2020) price-to-earnings (or "P/E") ratio of 14.7x might make it look like a buy right now compared to the market in Saudi Arabia, where around half of the companies have P/E ratios above 23x and even P/E's above 39x 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 limited.

We've discovered 1 warning sign about SABIC Agri-Nutrients. View them for free.

While the market has experienced earnings growth lately, SABIC Agri-Nutrients' earnings have gone into reverse gear, which is not great. The P/E is probably low because investors think this poor earnings performance isn't going to get any better. If you still like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

View our latest analysis for SABIC Agri-Nutrients

Keen to find out how analysts think SABIC Agri-Nutrients' future stacks up against the industry? In that case, our free report is a great place to start.

Is There Any Growth For SABIC Agri-Nutrients?

The only time you'd be truly comfortable seeing a P/E as low as SABIC Agri-Nutrients' is when the company's growth is on track to lag the market.

Retrospectively, the last year delivered a frustrating 9.1% decrease to the company's bottom line. As a result, earnings from three years ago have also fallen 36% overall. Therefore, it's fair to say the earnings growth recently has been undesirable for the company.

Turning to the outlook, the next three years should generate growth of 1.2% per annum as estimated by the nine analysts watching the company. That's shaping up to be materially lower than the 12% each year growth forecast for the broader market.

In light of this, it's understandable that SABIC Agri-Nutrients' P/E sits below the majority of other companies. It seems most investors are expecting to see limited future growth and are only willing to pay a reduced amount for the stock.

The Key Takeaway

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

As we suspected, our examination of SABIC Agri-Nutrients' analyst forecasts revealed that its inferior earnings outlook is contributing to its low P/E. 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 SABIC Agri-Nutrients is showing 1 warning sign in our investment analysis, you should know about.

If these risks are making you reconsider your opinion on SABIC Agri-Nutrients, 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.