Market Might Still Lack Some Conviction On Adeer Real Estate Company (TADAWUL:9634) Even After 27% Share Price Boost

Adeer Real Estate Company (TADAWUL:9634) shares have continued their recent momentum with a 27% gain in the last month alone. While recent buyers may be laughing, long-term holders might not be as pleased since the recent gain only brings the stock back to where it started a year ago.

Although its price has surged higher, Adeer Real Estate's price-to-earnings (or "P/E") ratio of 9.8x might still make it look like a strong buy right now compared to the market in Saudi Arabia, where around half of the companies have P/E ratios above 21x and even P/E's above 36x are quite common. Although, it's not wise to just take the P/E at face value as there may be an explanation why it's so limited.

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The earnings growth achieved at Adeer Real Estate over the last year would be more than acceptable for most companies. It might be that many expect the respectable earnings performance to degrade substantially, which has repressed the P/E. If that doesn't eventuate, then existing shareholders have reason to be optimistic about the future direction of the share price.

Check out our latest analysis for Adeer Real Estate

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Adeer Real Estate will help you shine a light on its historical performance.

Does Growth Match The Low P/E?

In order to justify its P/E ratio, Adeer Real Estate would need to produce anemic growth that's substantially trailing the market.

If we review the last year of earnings growth, the company posted a terrific increase of 27%. Pleasingly, EPS has also lifted 189% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Comparing that to the market, which is only predicted to deliver 11% growth in the next 12 months, the company's momentum is stronger based on recent medium-term annualised earnings results.

With this information, we find it odd that Adeer Real Estate 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 Final Word

Even after such a strong price move, Adeer Real Estate's P/E still trails the rest of the market significantly. Using the price-to-earnings ratio alone to determine if you should sell your stock isn't sensible, however it can be a practical guide to the company's future prospects.

We've established that Adeer Real Estate currently trades on a much lower than expected P/E since its recent three-year growth is higher than the wider market forecast. There could be some major unobserved threats to earnings preventing the P/E ratio from matching this positive performance. It appears many are indeed anticipating earnings instability, because the persistence of these recent medium-term conditions would normally provide a boost to the share price.

You always need to take note of risks, for example - Adeer Real Estate has 1 warning sign we think you should be aware of.

You might be able to find a better investment than Adeer Real Estate. 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.