Investors Still Aren't Entirely Convinced By Saudi Real Estate Company's (TADAWUL:4020) Revenues Despite 28% Price Jump

Despite an already strong run, Saudi Real Estate Company (TADAWUL:4020) shares have been powering on, with a gain of 28% in the last thirty days. The last 30 days bring the annual gain to a very sharp 43%.

In spite of the firm bounce in price, Saudi Real Estate may still be sending very bullish signals at the moment with its price-to-sales (or "P/S") ratio of 3.4x, since almost half of all companies in the Real Estate industry in Saudi Arabia have P/S ratios greater than 8.8x and even P/S higher than 16x are not unusual. However, the P/S might be quite low for a reason and it requires further investigation to determine if it's justified.

View our latest analysis for Saudi Real Estate

How Has Saudi Real Estate Performed Recently?

Recent times haven't been great for Saudi Real Estate as its revenue has been rising slower than most other companies. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If you still like the company, you'd be hoping revenue doesn't get any worse and that you could pick up some stock while it's out of favour.

Want the full picture on analyst estimates for the company? Then our free report on Saudi Real Estate will help you uncover what's on the horizon.

How Is Saudi Real Estate's Revenue Growth Trending?

In order to justify its P/S ratio, Saudi Real Estate would need to produce anemic growth that's substantially trailing the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 7.7% last year. While this performance is only fair, the company was still able to deliver immense revenue growth over the last three years. So we can start by confirming that the company has done a tremendous job of growing revenue over that time.

Shifting to the future, estimates from the lone analyst covering the company suggest revenue should grow by 17% over the next year. With the industry only predicted to deliver 11%, the company is positioned for a stronger revenue result.

With this information, we find it odd that Saudi Real Estate is trading at a P/S lower than the industry. Apparently some shareholders are doubtful of the forecasts and have been accepting significantly lower selling prices.

What We Can Learn From Saudi Real Estate's P/S?

Even after such a strong price move, Saudi Real Estate's P/S still trails the rest of the industry. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

To us, it seems Saudi Real Estate currently trades on a significantly depressed P/S given its forecasted revenue growth is higher than the rest of its industry. When we see strong growth forecasts like this, we can only assume potential risks are what might be placing significant pressure on the P/S ratio. It appears the market could be anticipating revenue instability, because these conditions should normally provide a boost to the share price.

And what about other risks? Every company has them, and we've spotted 1 warning sign for Saudi Real Estate you should know about.

If these risks are making you reconsider your opinion on Saudi Real Estate, explore our interactive list of high quality stocks to get an idea of what else is out there.

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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.