Getting In Cheap On Sahara International Petrochemical Company (TADAWUL:2310) Might Be Difficult

When close to half the companies in Saudi Arabia have price-to-earnings ratios (or "P/E's") below 23x, you may consider Sahara International Petrochemical Company (TADAWUL:2310) as a stock to potentially avoid with its 31.2x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

Sahara International Petrochemical could be doing better as its earnings have been going backwards lately while most other companies have been seeing positive earnings growth. One possibility is that the P/E is high because investors think this poor earnings performance will turn the corner. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Sahara International Petrochemical

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

How Is Sahara International Petrochemical's Growth Trending?

There's an inherent assumption that a company should outperform the market for P/E ratios like Sahara International Petrochemical's to be considered reasonable.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 62%. As a result, earnings from three years ago have also fallen 78% overall. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

Shifting to the future, estimates from the eight analysts covering the company suggest earnings should grow by 37% each year over the next three years. That's shaping up to be materially higher than the 15% per annum growth forecast for the broader market.

In light of this, it's understandable that Sahara International Petrochemical's P/E sits above the majority of other companies. Apparently shareholders aren't keen to offload something that is potentially eyeing a more prosperous future.

The Final Word

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 Sahara International Petrochemical 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. It's hard to see the share price falling strongly in the near future under these circumstances.

Before you take the next step, you should know about the 2 warning signs for Sahara International Petrochemical that we have uncovered.

Of course, you might also be able to find a better stock than Sahara International Petrochemical. So you may wish to see this free collection of other companies that have reasonable P/E ratios and have grown earnings strongly.

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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.