Fawaz Abdulaziz Al Hokair & Company (TADAWUL:4240) Surges 30% Yet Its Low P/S Is No Reason For Excitement

Fawaz Abdulaziz Al Hokair & Company (TADAWUL:4240) shares have had a really impressive month, gaining 30% after a shaky period beforehand. Unfortunately, the gains of the last month did little to right the losses of the last year with the stock still down 49% over that time.

Although its price has surged higher, given about half the companies operating in Saudi Arabia's Specialty Retail industry have price-to-sales ratios (or "P/S") above 1x, you may still consider Fawaz Abdulaziz Al Hokair as an attractive investment with its 0.2x P/S ratio. Although, it's not wise to just take the P/S at face value as there may be an explanation why it's limited.

See our latest analysis for Fawaz Abdulaziz Al Hokair

How Has Fawaz Abdulaziz Al Hokair Performed Recently?

Fawaz Abdulaziz Al Hokair hasn't been tracking well recently as its declining revenue compares poorly to other companies, which have seen some growth in their revenues on average. It seems that many are expecting the poor revenue performance to persist, which has repressed the P/S ratio. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Want the full picture on analyst estimates for the company? Then our free report on Fawaz Abdulaziz Al Hokair will help you uncover what's on the horizon.

What Are Revenue Growth Metrics Telling Us About The Low P/S?

Fawaz Abdulaziz Al Hokair's P/S ratio would be typical for a company that's only expected to deliver limited growth, and importantly, perform worse than the industry.

Retrospectively, the last year delivered a frustrating 8.2% decrease to the company's top line. The last three years don't look nice either as the company has shrunk revenue by 5.7% in aggregate. Accordingly, shareholders would have felt downbeat about the medium-term rates of revenue growth.

Turning to the outlook, the next three years should generate growth of 1.5% each year as estimated by the six analysts watching the company. With the industry predicted to deliver 12% growth per year, the company is positioned for a weaker revenue result.

With this information, we can see why Fawaz Abdulaziz Al Hokair is trading at a P/S lower than the industry. Apparently many shareholders weren't comfortable holding on while the company is potentially eyeing a less prosperous future.

The Bottom Line On Fawaz Abdulaziz Al Hokair's P/S

Despite Fawaz Abdulaziz Al Hokair's share price climbing recently, its P/S still lags most other companies. It's argued the price-to-sales ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

As we suspected, our examination of Fawaz Abdulaziz Al Hokair's analyst forecasts revealed that its inferior revenue outlook is contributing to its low P/S. Right now shareholders are accepting the low P/S as they concede future revenue probably won't provide any pleasant surprises. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

We don't want to rain on the parade too much, but we did also find 3 warning signs for Fawaz Abdulaziz Al Hokair (2 are a bit concerning!) that you need to be mindful of.

If you're unsure about the strength of Fawaz Abdulaziz Al Hokair's business, why not explore our interactive list of stocks with solid business fundamentals for some other companies you may have missed.

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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.