Investors Interested In Arabian Contracting Services Company's (TADAWUL:4071) Earnings

With a price-to-earnings (or "P/E") ratio of 26.6x Arabian Contracting Services Company (TADAWUL:4071) may be sending bearish signals at the moment, given that almost half of all companies in Saudi Arabia have P/E ratios under 22x and even P/E's lower than 15x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

While the market has experienced earnings growth lately, Arabian Contracting Services' earnings have gone into reverse gear, which is not great. It might be that many expect the dour earnings performance to recover substantially, which has kept the P/E from collapsing. If not, then existing shareholders may be extremely nervous about the viability of the share price.

View our latest analysis for Arabian Contracting Services

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Arabian Contracting Services.

Is There Enough Growth For Arabian Contracting Services?

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

Retrospectively, the last year delivered a frustrating 16% decrease to the company's bottom line. However, a few very strong years before that means that it was still able to grow EPS by an impressive 50% in total over the last three years. So we can start by confirming that the company has generally done a very good job of growing earnings over that time, even though it had some hiccups along the way.

Looking ahead now, EPS is anticipated to climb by 39% each year during the coming three years according to the four analysts following the company. Meanwhile, the rest of the market is forecast to only expand by 12% each year, which is noticeably less attractive.

In light of this, it's understandable that Arabian Contracting Services' 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 Bottom Line On Arabian Contracting Services' P/E

While the price-to-earnings ratio shouldn't be the defining factor in whether you buy a stock or not, it's quite a capable barometer of earnings expectations.

We've established that Arabian Contracting Services 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. Unless these conditions change, they will continue to provide strong support to the share price.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 3 warning signs with Arabian Contracting Services (at least 2 which are significant), and understanding these should be part of your investment process.

Of course, you might also be able to find a better stock than Arabian Contracting Services. 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.