Saudi Company for Hardware SACO's (TADAWUL:4008) 27% Price Boost Is Out Of Tune With Revenues

Saudi Company for Hardware SACO (TADAWUL:4008) shareholders would be excited to see that the share price has had a great month, posting a 27% gain and recovering from prior weakness. The last 30 days bring the annual gain to a very sharp 30%.

In spite of the firm bounce in price, you could still be forgiven for feeling indifferent about Saudi Company for Hardware SACO's P/S ratio of 1.3x, since the median price-to-sales (or "P/S") ratio for the Specialty Retail industry in Saudi Arabia is about the same. Although, it's not wise to simply ignore the P/S without explanation as investors may be disregarding a distinct opportunity or a costly mistake.

Check out our latest analysis for Saudi Company for Hardware SACO

What Does Saudi Company for Hardware SACO's Recent Performance Look Like?

While the industry has experienced revenue growth lately, Saudi Company for Hardware SACO's revenue has gone into reverse gear, which is not great. Perhaps the market is expecting its poor revenue performance to improve, keeping the P/S from dropping. If not, then existing shareholders may be a little nervous about the viability of the share price.

Keen to find out how analysts think Saudi Company for Hardware SACO's future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The P/S Ratio?

In order to justify its P/S ratio, Saudi Company for Hardware SACO would need to produce growth that's similar to the industry.

Retrospectively, the last year delivered a frustrating 12% decrease to the company's top line. This means it has also seen a slide in revenue over the longer-term as revenue is down 32% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Looking ahead now, revenue is anticipated to climb by 7.3% per annum during the coming three years according to the three analysts following the company. That's shaping up to be materially lower than the 12% per year growth forecast for the broader industry.

In light of this, it's curious that Saudi Company for Hardware SACO's P/S sits in line with the majority of other companies. It seems most investors are ignoring the fairly limited growth expectations and are willing to pay up for exposure to the stock. Maintaining these prices will be difficult to achieve as this level of revenue growth is likely to weigh down the shares eventually.

The Bottom Line On Saudi Company for Hardware SACO's P/S

Saudi Company for Hardware SACO appears to be back in favour with a solid price jump bringing its P/S back in line with other companies in the industry Typically, we'd caution against reading too much into price-to-sales ratios when settling on investment decisions, though it can reveal plenty about what other market participants think about the company.

Given that Saudi Company for Hardware SACO's revenue growth projections are relatively subdued in comparison to the wider industry, it comes as a surprise to see it trading at its current P/S ratio. When we see companies with a relatively weaker revenue outlook compared to the industry, we suspect the share price is at risk of declining, sending the moderate P/S lower. A positive change is needed in order to justify the current price-to-sales ratio.

Plus, you should also learn about this 1 warning sign we've spotted with Saudi Company for Hardware SACO.

If companies with solid past earnings growth is up your alley, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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