Further Upside For Arabian Contracting Services Company (TADAWUL:4071) Shares Could Introduce Price Risks After 27% Bounce

Arabian Contracting Services Company (TADAWUL:4071) shareholders are no doubt pleased to see that the share price has bounced 27% in the last month, although it is still struggling to make up recently lost ground. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 38% over that time.

Although its price has surged higher, you could still be forgiven for feeling indifferent about Arabian Contracting Services' P/S ratio of 3.2x, since the median price-to-sales (or "P/S") ratio for the Media industry in Saudi Arabia is also close to 2.7x. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

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Check out our latest analysis for Arabian Contracting Services

What Does Arabian Contracting Services' Recent Performance Look Like?

With its revenue growth in positive territory compared to the declining revenue of most other companies, Arabian Contracting Services has been doing quite well of late. It might be that many expect the strong revenue performance to deteriorate like the rest, which has kept the P/S ratio from rising. Those who are bullish on Arabian Contracting Services will be hoping that this isn't the case, so that they can pick up the stock at a slightly lower valuation.

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

Do Revenue Forecasts Match The P/S Ratio?

There's an inherent assumption that a company should be matching the industry for P/S ratios like Arabian Contracting Services' to be considered reasonable.

Taking a look back first, we see that the company grew revenue by an impressive 24% last year. The latest three year period has also seen an excellent 91% overall rise in revenue, aided by its short-term performance. Accordingly, shareholders would have definitely welcomed those medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 20% per annum as estimated by the three analysts watching the company. With the industry only predicted to deliver 6.6% per annum, the company is positioned for a stronger revenue result.

With this information, we find it interesting that Arabian Contracting Services is trading at a fairly similar P/S compared to the industry. Apparently some shareholders are skeptical of the forecasts and have been accepting lower selling prices.

The Bottom Line On Arabian Contracting Services' P/S

Arabian Contracting Services' stock has a lot of momentum behind it lately, which has brought its P/S level with the rest of the industry. Generally, our preference is to limit the use of the price-to-sales ratio to establishing what the market thinks about the overall health of a company.

Looking at Arabian Contracting Services' analyst forecasts revealed that its superior revenue outlook isn't giving the boost to its P/S that we would've expected. When we see a strong revenue outlook, with growth outpacing the industry, we can only assume potential uncertainty around these figures are what might be placing slight pressure on the P/S ratio. At least the risk of a price drop looks to be subdued, but investors seem to think future revenue could see some volatility.

And what about other risks? Every company has them, and we've spotted 3 warning signs for Arabian Contracting Services (of which 1 is potentially serious!) you should know about.

If strong companies turning a profit tickle your fancy, then you'll want to 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.