Unpleasant Surprises Could Be In Store For Mohammed Hasan AlNaqool Sons Co.'s (TADAWUL:9514) Shares

There wouldn't be many who think Mohammed Hasan AlNaqool Sons Co.'s (TADAWUL:9514) price-to-sales (or "P/S") ratio of 3.9x is worth a mention when the median P/S for the Basic Materials industry in Saudi Arabia is similar at about 4.8x. While this might not raise any eyebrows, if the P/S ratio is not justified investors could be missing out on a potential opportunity or ignoring looming disappointment.

View our latest analysis for Mohammed Hasan AlNaqool Sons

What Does Mohammed Hasan AlNaqool Sons' P/S Mean For Shareholders?

As an illustration, revenue has deteriorated at Mohammed Hasan AlNaqool Sons over the last year, which is not ideal at all. Perhaps investors believe the recent revenue performance is enough to keep in line with the industry, which is keeping the P/S from dropping off. If not, then existing shareholders may be a little nervous about the viability of the share price.

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.

Is There Some Revenue Growth Forecasted For Mohammed Hasan AlNaqool Sons?

Mohammed Hasan AlNaqool Sons' P/S ratio would be typical for a company that's only expected to deliver moderate growth, and importantly, perform in line with the industry.

Taking a look back first, the company's revenue growth last year wasn't something to get excited about as it posted a disappointing decline of 27%. Regardless, revenue has managed to lift by a handy 6.8% in aggregate from three years ago, thanks to the earlier period of growth. Accordingly, while they would have preferred to keep the run going, shareholders would be roughly satisfied with the medium-term rates of revenue growth.

This is in contrast to the rest of the industry, which is expected to grow by 5.5% over the next year, materially higher than the company's recent medium-term annualised growth rates.

With this information, we find it interesting that Mohammed Hasan AlNaqool Sons is trading at a fairly similar P/S compared to the industry. Apparently many investors in the company are less bearish than recent times would indicate and aren't willing to let go of their stock right now. They may be setting themselves up for future disappointment if the P/S falls to levels more in line with recent growth rates.

The Bottom Line On Mohammed Hasan AlNaqool Sons' P/S

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

Our examination of Mohammed Hasan AlNaqool Sons revealed its poor three-year revenue trends aren't resulting in a lower P/S as per our expectations, given they look worse than current industry outlook. When we see weak revenue with slower than industry growth, we suspect the share price is at risk of declining, bringing the P/S back in line with expectations. Unless there is a significant improvement in the company's medium-term performance, it will be difficult to prevent the P/S ratio from declining to a more reasonable level.

Before you settle on your opinion, we've discovered 5 warning signs for Mohammed Hasan AlNaqool Sons (2 are concerning!) that you should be aware of.

Of course, profitable companies with a history of great earnings growth are generally safer bets. 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.