Investors Interested In Aldrees Petroleum and Transport Services Company's (TADAWUL:4200) Earnings

With a price-to-earnings (or "P/E") ratio of 43.1x Aldrees Petroleum and Transport Services Company (TADAWUL:4200) may be sending very bearish signals at the moment, given that almost half of all companies in Saudi Arabia have P/E ratios under 25x and even P/E's lower than 17x are not unusual. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

Aldrees Petroleum and Transport Services could be doing better as it's been growing earnings less than most other companies lately. It might be that many expect the uninspiring earnings performance to recover significantly, which has kept the P/E from collapsing. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

View our latest analysis for Aldrees Petroleum and Transport Services

Keen to find out how analysts think Aldrees Petroleum and Transport Services' future stacks up against the industry? In that case, our free report is a great place to start.

How Is Aldrees Petroleum and Transport Services' Growth Trending?

In order to justify its P/E ratio, Aldrees Petroleum and Transport Services would need to produce outstanding growth well in excess of the market.

If we review the last year of earnings growth, the company posted a worthy increase of 9.3%. This was backed up an excellent period prior to see EPS up by 98% 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.

Shifting to the future, estimates from the seven analysts covering the company suggest earnings should grow by 23% each year over the next three years. That's shaping up to be materially higher than the 16% per annum growth forecast for the broader market.

In light of this, it's understandable that Aldrees Petroleum and Transport Services' P/E sits above the majority of other companies. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

The Key Takeaway

Generally, our preference is to limit the use of the price-to-earnings ratio to establishing what the market thinks about the overall health of a company.

As we suspected, our examination of Aldrees Petroleum and Transport Services' analyst forecasts revealed that its superior earnings outlook is contributing to its high P/E. At this stage investors feel the potential for a deterioration in earnings isn't great enough to justify a lower P/E ratio. It's hard to see the share price falling strongly in the near future under these circumstances.

Having said that, be aware Aldrees Petroleum and Transport Services is showing 1 warning sign in our investment analysis, you should know about.

If P/E ratios interest you, you may wish to see this free collection of other companies with strong earnings growth and low P/E ratios.

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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.