Stock Analysis

The Market Doesn't Like What It Sees From Saudi Aramco Base Oil Company - Luberef's (TADAWUL:2223) Earnings Yet

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When close to half the companies in Saudi Arabia have price-to-earnings ratios (or "P/E's") above 25x, you may consider Saudi Aramco Base Oil Company - Luberef (TADAWUL:2223) as a highly attractive investment with its 9.2x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly reduced P/E.

With earnings growth that's superior to most other companies of late, Saudi Aramco Base Oil Company - Luberef has been doing relatively well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If you 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.

See our latest analysis for Saudi Aramco Base Oil Company - Luberef

SASE:2223 Price Based on Past Earnings March 29th 2023
Want the full picture on analyst estimates for the company? Then our free report on Saudi Aramco Base Oil Company - Luberef will help you uncover what's on the horizon.

How Is Saudi Aramco Base Oil Company - Luberef's Growth Trending?

There's an inherent assumption that a company should far underperform the market for P/E ratios like Saudi Aramco Base Oil Company - Luberef's to be considered reasonable.

Taking a look back first, we see that the company grew earnings per share by an impressive 32% last year. Still, EPS has barely risen at all from three years ago in total, which is not ideal. So it appears to us that the company has had a mixed result in terms of growing earnings over that time.

Turning to the outlook, the next three years should bring diminished returns, with earnings decreasing 15% per annum as estimated by the five analysts watching the company. Meanwhile, the broader market is forecast to expand by 13% per annum, which paints a poor picture.

With this information, we are not surprised that Saudi Aramco Base Oil Company - Luberef is trading at a P/E lower than the market. Nonetheless, there's no guarantee the P/E has reached a floor yet with earnings going in reverse. There's potential for the P/E to fall to even lower levels if the company doesn't improve its profitability.

The Final Word

Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

As we suspected, our examination of Saudi Aramco Base Oil Company - Luberef's analyst forecasts revealed that its outlook for shrinking earnings is contributing to its low P/E. Right now shareholders are accepting the low P/E as they concede future earnings probably won't provide any pleasant surprises. It's hard to see the share price rising strongly in the near future under these circumstances.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Saudi Aramco Base Oil Company - Luberef (at least 1 which is a bit concerning), and understanding them should be part of your investment process.

If P/E ratios interest you, you may wish to see this free collection of other companies that have grown earnings strongly and trade on P/E's below 20x.

Valuation is complex, but we're helping make it simple.

Find out whether Saudi Aramco Base Oil Company - Luberef is potentially over or undervalued by checking out our comprehensive analysis, which includes fair value estimates, risks and warnings, dividends, insider transactions and financial health.

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