Why Investors Shouldn't Be Surprised By Aldrees Petroleum and Transport Services Company's (TADAWUL:4200) 28% Share Price Surge

Aldrees Petroleum and Transport Services Company (TADAWUL:4200) shares have had a really impressive month, gaining 28% after a shaky period beforehand. Notwithstanding the latest gain, the annual share price return of 2.8% isn't as impressive.

After such a large jump in price, given close to half the companies in Saudi Arabia have price-to-earnings ratios (or "P/E's") below 21x, you may consider Aldrees Petroleum and Transport Services as a stock to avoid entirely with its 38.6x P/E ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the highly elevated P/E.

This technology could replace computers: discover the 20 stocks are working to make quantum computing a reality.

Recent times have been advantageous for Aldrees Petroleum and Transport Services as its earnings have been rising faster than most other companies. It seems that many are expecting the strong earnings performance to persist, which has raised the P/E. You'd really hope so, otherwise you're paying a pretty hefty price for no particular reason.

See our latest analysis for Aldrees Petroleum and Transport Services

If you'd like to see what analysts are forecasting going forward, you should check out our free report on Aldrees Petroleum and Transport Services.

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.

Retrospectively, the last year delivered an exceptional 26% gain to the company's bottom line. The strong recent performance means it was also able to grow EPS by 80% 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.

Turning to the outlook, the next three years should generate growth of 14% each year as estimated by the eight analysts watching the company. That's shaping up to be materially higher than the 12% each year growth forecast for the broader market.

With this information, we can see why Aldrees Petroleum and Transport Services is trading at such a high P/E compared to the market. It seems most investors are expecting this strong future growth and are willing to pay more for the stock.

What We Can Learn From Aldrees Petroleum and Transport Services' P/E?

Aldrees Petroleum and Transport Services' P/E is flying high just like its stock has during the last month. 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 Aldrees Petroleum and Transport Services maintains its high P/E on the strength of its forecast growth being higher than the wider market, as expected. Right now shareholders are comfortable with the P/E as they are quite confident future earnings aren't under threat. It's hard to see the share price falling strongly in the near future under these circumstances.

Many other vital risk factors can be found on the company's balance sheet. Take a look at our free balance sheet analysis for Aldrees Petroleum and Transport Services with six simple checks on some of these key factors.

Of course, you might find a fantastic investment by looking at a few good candidates. So take a peek at this free list of companies with a strong growth track record, trading on a low P/E.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

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.