Mohammed Hasan AlNaqool Sons Co.'s (TADAWUL:9514) P/E Is On The Mark

When close to half the companies in Saudi Arabia have price-to-earnings ratios (or "P/E's") below 28x, you may consider Mohammed Hasan AlNaqool Sons Co. (TADAWUL:9514) as a stock to potentially avoid with its 34.3x P/E ratio. However, the P/E might be high for a reason and it requires further investigation to determine if it's justified.

Mohammed Hasan AlNaqool Sons certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. The P/E is probably high because investors think this strong earnings growth will be enough to outperform the broader market in the near future. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for Mohammed Hasan AlNaqool Sons

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Mohammed Hasan AlNaqool Sons will help you shine a light on its historical performance.

How Is Mohammed Hasan AlNaqool Sons' Growth Trending?

There's an inherent assumption that a company should outperform the market for P/E ratios like Mohammed Hasan AlNaqool Sons' to be considered reasonable.

Retrospectively, the last year delivered an exceptional 42% gain to the company's bottom line. The latest three year period has also seen an excellent 158% overall rise in EPS, aided by its short-term performance. Therefore, it's fair to say the earnings growth recently has been superb for the company.

Comparing that to the market, which is only predicted to deliver 18% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

In light of this, it's understandable that Mohammed Hasan AlNaqool Sons' P/E sits above the majority of other companies. It seems most investors are expecting this strong growth to continue and are willing to pay more for the stock.

What We Can Learn From Mohammed Hasan AlNaqool Sons' P/E?

We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Mohammed Hasan AlNaqool Sons maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, as expected. Right now shareholders are comfortable with the P/E as they are quite confident earnings aren't under threat. If recent medium-term earnings trends continue, it's hard to see the share price falling strongly in the near future under these circumstances.

Plus, you should also learn about these 3 warning signs we've spotted with Mohammed Hasan AlNaqool Sons (including 1 which is concerning).

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.

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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.