Investors Continue Waiting On Sidelines For Sahara International Petrochemical Company (TADAWUL:2310)

Sahara International Petrochemical Company's (TADAWUL:2310) price-to-earnings (or "P/E") ratio of 21.2x 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 28x and even P/E's above 44x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/E.

While the market has experienced earnings growth lately, Sahara International Petrochemical's earnings have gone into reverse gear, which is not great. It seems that many are expecting the dour earnings performance to persist, which has repressed the P/E. 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.

Check out our latest analysis for Sahara International Petrochemical

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Sahara International Petrochemical.

What Are Growth Metrics Telling Us About The Low P/E?

In order to justify its P/E ratio, Sahara International Petrochemical would need to produce sluggish growth that's trailing the market.

If we review the last year of earnings, dishearteningly the company's profits fell to the tune of 67%. Even so, admirably EPS has lifted 571% in aggregate from three years ago, notwithstanding the last 12 months. Accordingly, while they would have preferred to keep the run going, shareholders would probably welcome the medium-term rates of earnings growth.

Turning to the outlook, the next three years should generate growth of 20% per annum as estimated by the six analysts watching the company. Meanwhile, the rest of the market is forecast to only expand by 17% per year, which is noticeably less attractive.

In light of this, it's peculiar that Sahara International Petrochemical's P/E sits below the majority of other companies. It looks like most investors are not convinced at all that the company can achieve future growth expectations.

The Key Takeaway

Typically, we'd caution against reading too much into price-to-earnings ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

We've established that Sahara International Petrochemical currently trades on a much lower than expected P/E since its forecast growth is higher than the wider market. When we see a strong earnings outlook with faster-than-market growth, we assume potential risks are what might be placing significant pressure on the P/E ratio. At least price risks look to be very low, but investors seem to think future earnings could see a lot of volatility.

Having said that, be aware Sahara International Petrochemical is showing 2 warning signs in our investment analysis, you should know about.

You might be able to find a better investment than Sahara International Petrochemical. If you want a selection of possible candidates, check out this free list of interesting companies that trade on a low P/E (but have proven they can grow earnings).

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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.