There's No Escaping Fawaz Abdulaziz Al Hokair & Company's (TADAWUL:4240) Muted Revenues Despite A 27% Share Price Rise

Fawaz Abdulaziz Al Hokair & Company (TADAWUL:4240) shareholders would be excited to see that the share price has had a great month, posting a 27% gain and recovering from prior weakness. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 11% in the last twelve months.

In spite of the firm bounce in price, when close to half the companies operating in Saudi Arabia's Specialty Retail industry have price-to-sales ratios (or "P/S") above 1.3x, you may still consider Fawaz Abdulaziz Al Hokair as an enticing stock to check out with its 0.3x P/S ratio. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the reduced P/S.

See our latest analysis for Fawaz Abdulaziz Al Hokair

What Does Fawaz Abdulaziz Al Hokair's Recent Performance Look Like?

With revenue growth that's inferior to most other companies of late, Fawaz Abdulaziz Al Hokair has been relatively sluggish. Perhaps the market is expecting the current trend of poor revenue growth to continue, which has kept the P/S suppressed. If this is the case, then existing shareholders will probably struggle to get excited about the future direction of the share price.

Keen to find out how analysts think Fawaz Abdulaziz Al Hokair's future stacks up against the industry? In that case, our free report is a great place to start.

Do Revenue Forecasts Match The Low P/S Ratio?

The only time you'd be truly comfortable seeing a P/S as low as Fawaz Abdulaziz Al Hokair's is when the company's growth is on track to lag the industry.

Taking a look back first, we see that the company managed to grow revenues by a handy 4.2% last year. Still, lamentably revenue has fallen 6.6% in aggregate from three years ago, which is disappointing. So unfortunately, we have to acknowledge that the company has not done a great job of growing revenue over that time.

Turning to the outlook, the next year should bring diminished returns, with revenue decreasing 1.5% as estimated by the three analysts watching the company. With the industry predicted to deliver 11% growth, that's a disappointing outcome.

With this information, we are not surprised that Fawaz Abdulaziz Al Hokair is trading at a P/S lower than the industry. Nonetheless, there's no guarantee the P/S has reached a floor yet with revenue going in reverse. There's potential for the P/S to fall to even lower levels if the company doesn't improve its top-line growth.

The Key Takeaway

The latest share price surge wasn't enough to lift Fawaz Abdulaziz Al Hokair's P/S close to the industry median. 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.

With revenue forecasts that are inferior to the rest of the industry, it's no surprise that Fawaz Abdulaziz Al Hokair's P/S is on the lower end of the spectrum. As other companies in the industry are forecasting revenue growth, Fawaz Abdulaziz Al Hokair's poor outlook justifies its low P/S ratio. Unless these conditions improve, they will continue to form a barrier for the share price around these levels.

You need to take note of risks, for example - Fawaz Abdulaziz Al Hokair has 3 warning signs (and 1 which doesn't sit too well with us) we think you should know about.

It's important to make sure you look for a great company, not just the first idea you come across. So if growing profitability aligns with your idea of a great company, take a peek at this free list of interesting companies with strong recent earnings growth (and a low P/E).

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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.