With Retal Urban Development Company (TADAWUL:4322) It Looks Like You'll Get What You Pay For

With a price-to-earnings (or "P/E") ratio of 25.2x Retal Urban Development Company (TADAWUL:4322) may be sending bearish signals at the moment, given that almost half of all companies in Saudi Arabia have P/E ratios under 20x and even P/E's lower than 14x are not unusual. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's as high as it is.

We've found 21 US stocks that are forecast to pay a dividend yield of over 6% next year. See the full list for free.

Retal Urban Development certainly has been doing a good job lately as it's been growing earnings more than most other companies. The P/E is probably high because investors think this strong earnings performance will continue. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Retal Urban Development

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

How Is Retal Urban Development's Growth Trending?

Retal Urban Development's P/E ratio would be typical for a company that's expected to deliver solid growth, and importantly, perform better than the market.

Retrospectively, the last year delivered an exceptional 22% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 35% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

Shifting to the future, estimates from the dual analysts covering the company suggest earnings should grow by 33% per year over the next three years. That's shaping up to be materially higher than the 12% per year growth forecast for the broader market.

In light of this, it's understandable that Retal Urban Development's P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From Retal Urban Development's P/E?

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

As we suspected, our examination of Retal Urban Development's analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. 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.

We don't want to rain on the parade too much, but we did also find 2 warning signs for Retal Urban Development (1 shouldn't be ignored!) that you need to be mindful of.

If you're unsure about the strength of Retal Urban Development's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.