Market Might Still Lack Some Conviction On Enma Al Rawabi Company (TADAWUL:9521) Even After 26% Share Price Boost

Despite an already strong run, Enma Al Rawabi Company (TADAWUL:9521) shares have been powering on, with a gain of 26% in the last thirty days. Looking back a bit further, it's encouraging to see the stock is up 50% in the last year.

In spite of the firm bounce in price, Enma Al Rawabi's price-to-earnings (or "P/E") ratio of 16.1x might still make it look like a buy right now compared to the market in Saudi Arabia, where around half of the companies have P/E ratios above 25x and even P/E's above 43x are quite common. However, the P/E might be low for a reason and it requires further investigation to determine if it's justified.

With earnings growth that's exceedingly strong of late, Enma Al Rawabi has been doing very well. It might be that many expect the strong earnings performance to degrade substantially, which has repressed the P/E. If you like the company, you'd be hoping this isn't the case so that you could potentially pick up some stock while it's out of favour.

Check out our latest analysis for Enma Al Rawabi

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Enma Al Rawabi's earnings, revenue and cash flow.

Does Growth Match The Low P/E?

The only time you'd be truly comfortable seeing a P/E as low as Enma Al Rawabi's is when the company's growth is on track to lag the market.

Taking a look back first, we see that the company grew earnings per share by an impressive 117% last year. The strong recent performance means it was also able to grow EPS by 303% in total over the last three years. So we can start by confirming that the company has done a great job of growing earnings over that time.

This is in contrast to the rest of the market, which is expected to grow by 16% over the next year, materially lower than the company's recent medium-term annualised growth rates.

With this information, we find it odd that Enma Al Rawabi is trading at a P/E lower than the market. It looks like most investors are not convinced the company can maintain its recent growth rates.

The Bottom Line On Enma Al Rawabi's P/E

Despite Enma Al Rawabi's shares building up a head of steam, its P/E still lags most other companies. 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.

Our examination of Enma Al Rawabi revealed its three-year earnings trends aren't contributing to its P/E anywhere near as much as we would have predicted, given they look better than current market expectations. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. At least price risks look to be very low if recent medium-term earnings trends continue, but investors seem to think future earnings could see a lot of volatility.

Don't forget that there may be other risks. For instance, we've identified 1 warning sign for Enma Al Rawabi that you should be aware of.

You might be able to find a better investment than Enma Al Rawabi. If you want a selection of possible candidates, 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.