Advance International Company for Communication and Information Technology (TADAWUL:9524) Stock Rockets 29% As Investors Are Less Pessimistic Than Expected

Despite an already strong run, Advance International Company for Communication and Information Technology (TADAWUL:9524) shares have been powering on, with a gain of 29% in the last thirty days. Not all shareholders will be feeling jubilant, since the share price is still down a very disappointing 38% in the last twelve months.

Following the firm bounce in price, Advance International Company for Communication and Information Technology's price-to-earnings (or "P/E") ratio of 28x might make it look like a sell right now compared to the market in Saudi Arabia, where around half of the companies have P/E ratios below 24x and even P/E's below 17x are quite common. Nonetheless, we'd need to dig a little deeper to determine if there is a rational basis for the elevated P/E.

Advance International Company for Communication and Information Technology certainly has been doing a great job lately as it's been growing earnings at a really rapid pace. It seems that many are expecting the strong earnings performance to beat most other companies over the coming period, which has increased investors’ willingness to pay up for the stock. If not, then existing shareholders might be a little nervous about the viability of the share price.

See our latest analysis for Advance International Company for Communication and Information Technology

We don't have analyst forecasts, but you can see how recent trends are setting up the company for the future by checking out our free report on Advance International Company for Communication and Information Technology's earnings, revenue and cash flow.

Is There Enough Growth For Advance International Company for Communication and Information Technology?

The only time you'd be truly comfortable seeing a P/E as high as Advance International Company for Communication and Information Technology's is when the company's growth is on track to outshine the market.

If we review the last year of earnings growth, the company posted a terrific increase of 46%. Pleasingly, EPS has also lifted 30% in aggregate from three years ago, thanks to the last 12 months of growth. So we can start by confirming that the company has done a great job of growing earnings over that time.

Weighing that recent medium-term earnings trajectory against the broader market's one-year forecast for expansion of 16% shows it's noticeably less attractive on an annualised basis.

In light of this, it's alarming that Advance International Company for Communication and Information Technology's P/E sits above the majority of other companies. It seems most investors are ignoring the fairly limited recent growth rates 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.

The Bottom Line On Advance International Company for Communication and Information Technology's P/E

Advance International Company for Communication and Information Technology shares have received a push in the right direction, but its P/E is elevated too. It's argued the price-to-earnings ratio is an inferior measure of value within certain industries, but it can be a powerful business sentiment indicator.

Our examination of Advance International Company for Communication and Information Technology revealed its three-year earnings trends aren't impacting its high P/E anywhere near as much as we would have predicted, given they look worse than current market expectations. Right now we are increasingly uncomfortable with the high P/E as this earnings performance isn't likely to support such positive sentiment for long. Unless the recent medium-term conditions improve markedly, it's very challenging to accept these prices as being reasonable.

It's always necessary to consider the ever-present spectre of investment risk. We've identified 2 warning signs with Advance International Company for Communication and Information Technology (at least 1 which shouldn't be ignored), and understanding these should be part of your investment process.

If you're unsure about the strength of Advance International Company for Communication and Information Technology'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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