Banan Real Estate Company's (TADAWUL:9519) P/E Is Still On The Mark Following 36% Share Price Bounce

The Banan Real Estate Company (TADAWUL:9519) share price has done very well over the last month, posting an excellent gain of 36%. Taking a wider view, although not as strong as the last month, the full year gain of 18% is also fairly reasonable.

Following the firm bounce in price, given close to half the companies in Saudi Arabia have price-to-earnings ratios (or "P/E's") below 25x, you may consider Banan Real Estate as a stock to avoid entirely with its 42.2x P/E ratio. However, the P/E might be quite high for a reason and it requires further investigation to determine if it's justified.

The earnings growth achieved at Banan Real Estate over the last year would be more than acceptable for most companies. One possibility is that the P/E is high because investors think this respectable earnings growth will be enough to outperform the broader market in the near future. If not, then existing shareholders may be a little nervous about the viability of the share price.

See our latest analysis for Banan Real Estate

Although there are no analyst estimates available for Banan Real Estate, take a look at this free data-rich visualisation to see how the company stacks up on earnings, revenue and cash flow.

Is There Enough Growth For Banan Real Estate?

The only time you'd be truly comfortable seeing a P/E as steep as Banan Real Estate's is when the company's growth is on track to outshine the market decidedly.

If we review the last year of earnings growth, the company posted a terrific increase of 28%. The strong recent performance means it was also able to grow EPS by 90% in total over the last three years. Accordingly, shareholders would have probably welcomed those medium-term rates of earnings growth.

This is in contrast to the rest of the market, which is expected to grow by 19% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we can see why Banan Real Estate is trading at such a high P/E compared to the market. Presumably shareholders aren't keen to offload something they believe will continue to outmanoeuvre the bourse.

The Final Word

Shares in Banan Real Estate have built up some good momentum lately, which has really inflated its P/E. We'd say the price-to-earnings ratio's power isn't primarily as a valuation instrument but rather to gauge current investor sentiment and future expectations.

We've established that Banan Real Estate maintains its high P/E on the strength of its recent three-year growth being higher than the wider market forecast, as expected. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. Unless the recent medium-term conditions change, they will continue to provide strong support to the share price.

Having said that, be aware Banan Real Estate is showing 1 warning sign in our investment analysis, you should know about.

If these risks are making you reconsider your opinion on Banan 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.