Earnings Not Telling The Story For Al-Saif Stores for Development & Investment Company (TADAWUL:4192) After Shares Rise 25%

Al-Saif Stores for Development & Investment Company (TADAWUL:4192) shareholders have had their patience rewarded with a 25% share price jump in the last month. The last 30 days bring the annual gain to a very sharp 38%.

After such a large jump in price, Al-Saif Stores for Development & Investment may be sending bearish signals at the moment with its price-to-earnings (or "P/E") ratio of 40.6x, since almost half of all companies in Saudi Arabia have P/E ratios under 28x and even P/E's lower than 18x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

For instance, Al-Saif Stores for Development & Investment's receding earnings in recent times would have to be some food for thought. It might be that many expect the company to still outplay most other companies over the coming period, which has kept the P/E from collapsing. If not, then existing shareholders may be quite nervous about the viability of the share price.

See our latest analysis for Al-Saif Stores for Development & Investment

Want the full picture on earnings, revenue and cash flow for the company? Then our free report on Al-Saif Stores for Development & Investment will help you shine a light on its historical performance.

How Is Al-Saif Stores for Development & Investment's Growth Trending?

The only time you'd be truly comfortable seeing a P/E as high as Al-Saif Stores for Development & Investment's is when the company's growth is on track to outshine the market.

Taking a look back first, the company's earnings per share growth last year wasn't something to get excited about as it posted a disappointing decline of 24%. This means it has also seen a slide in earnings over the longer-term as EPS is down 94% in total over the last three years. Accordingly, shareholders would have felt downbeat about the medium-term rates of earnings growth.

In contrast to the company, the rest of the market is expected to grow by 19% over the next year, which really puts the company's recent medium-term earnings decline into perspective.

With this information, we find it concerning that Al-Saif Stores for Development & Investment is trading at a P/E higher than the market. It seems most investors are ignoring the recent poor growth rate and are hoping for a turnaround in the company's business prospects. Only the boldest would assume these prices are sustainable as a continuation of recent earnings trends is likely to weigh heavily on the share price eventually.

What We Can Learn From Al-Saif Stores for Development & Investment's P/E?

Al-Saif Stores for Development & Investment's P/E is getting right up there since its shares have risen strongly. 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.

We've established that Al-Saif Stores for Development & Investment currently trades on a much higher than expected P/E since its recent earnings have been in decline over the medium-term. When we see earnings heading backwards and underperforming the market forecasts, we suspect the share price is at risk of declining, sending the high P/E lower. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.

You need to take note of risks, for example - Al-Saif Stores for Development & Investment has 4 warning signs (and 3 which are concerning) we think you should know about.

You might be able to find a better investment than Al-Saif Stores for Development & Investment. 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.